Question: 15.3. Using the same data as in Exercise 15.2, a researcher tests for a stochastic trend in ln(IPt), using the following regression: ln1IPt2 = 0.026

15.3. Using the same data as in Exercise 15.2, a researcher tests for a stochastic trend in ln(IPt), using the following regression:

ln1IPt2 = 0.026 + 0.000097t - 0.0070 ln1IPt - 12 + 0.068ln1IPt - 12 10.0132 10.0000672 10.00372 10.0502

+ 0.169ln1IPt - 22 + 0.219ln1IPt - 32 + 0.173ln1IPt - 42, 10.0492 10.0502 10.0512 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 15.2?

Explain.

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