Question: 14.3. Using the same data as in Exercise 14.2, a researcher tests for a stochastic trend in ln(IPt), using the following regression: where the standard

14.3. Using the same data as in Exercise 14.2, a researcher tests for a stochastic trend in ln(IPt), using the following regression:

Aln(IP) = 0.030 +0.000014t 0.0085 In(IP-1) + 0.050Aln(IP-1) (0.015) (0.000009) (0.0044) (0.053)

where the standard errors shown in parentheses are computed using the homoskedasticity-only formula and the regressor t is a linear time trend.

a. Use the ADF statistic to test for a stochastic trend (unit root) in ln(IP).

b. Do these results support the specification used in Exercise 14.2?
Explain.

Aln(IP) = 0.030 +0.000014t 0.0085 In(IP-1) + 0.050Aln(IP-1) (0.015) (0.000009) (0.0044) (0.053) (0.053) (0.054) (0.054) +0.186 Aln(IP-2) + 0.240Aln(IP-3) + 0.173Aln(IP-4),

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