Question: C15.7 Use the data in PHILLIPS.RAW for this exercise. (i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form inft

C15.7 Use the data in PHILLIPS.RAW for this exercise. (i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form inft 0 1unemt et , where inft inft inft1. In estimating this equation by OLS, we assumed that the supply shock, et , was uncorrelated with unemt . If this is false, what can be said about the OLS estimator of 1? (ii) Suppose that et is unpredictable given all past information: E(et inft1,unemt1,…) 0. Explain why this makes unemt1 a good IV candidate for unemt . (iii) Regress unemt on unemt1. Are unemt and unemt1 significantly correlated? (iv) Estimate the expectations augmented Phillips curve by IV. Report the results in the usual form and compare them with the OLS estimates from Example 11.5.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Econometrics Questions!

C7 Use the data in PHILLIPS.RAW for this exercise. (i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form Dinft 5 b0 1 b1unemt 1 et , where Dinft 5 inft 2 inft21. In...

Use the data in PHILLIPS.RAW for this exercise. (i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form inft = 0 + 1 unemt + et, where inft = inft - inft-1. In...

Use the data in PHILLIPS for this exercise. (i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form Dinft 5 b0 1 b1unemt 1 et , where Dinft 5 inft 2 inft21. In...

C4 Use the data in PHILLIPS.RAW for this exercise, but only through 199 (i) In Example 11.5, we assumed that the natural rate of unemployment is constant. An alternative form of the expectations...

C11.4 Use the data in PHILLIPS.RAW for this exercise, but only through 1996. (i) In Example 11.5, we assumed that the natural rate of unemployment is constant. An alternative form of the expectations...

Use the data in PHILLIPS.RAW for this exercise, but only through 1996. (i) In Example 11.5, we assumed that the natural rate of unemployment is constant. An alternative form of the expectations...

(Lecture 10) (13 points) Use the data in PHILLIPS for this exercise. As we mentioned in Lecture 7, instead of the static Phillips curve model, we can estimate an expectations-augmented Phillips curve...

6. (Lecture 10) (13 points) Use the data in PHILLIPS for this exercise. As we mentioned in Lecture 7, instead of the static Phillips curve model, we can estimate an expectations-augmented Phillips...

Use the data in PHILLIPS for this exercise, but only through 1996. (i) In Example 11.5, we assumed that the natural rate of unemployment is constant. An alternative form of the expectations augmented...

Heckle Group began operations as an engineering consulting firm, on June 1. 2008. On that date it issued 100,000 shares of common stock for 920,000. During June, Heckle used 600,000 of the proceeds...

Calculate the equivalent periodic interest rate per payment interval for the following annuity Semi-annual payments earning 6% compounded monthly O 5.00000% O 3.03775% O 3.08771% 0 2.97233% O 0.83161%

Client experience and solutioning assessment 3 Read the following extract and answer the question that follows: these are the features and benefits of an investment account at one of the well - known...

Generate Y^ and (Y 2 Y^ ) for the first five cases of the data in Table 10.2.