C18.5 Use INTQRT.RAW for this exercise. (i) In Example 18.7, we estimated an error correction model for the hold- ing yield on six-month T-bills, where one lag of the holding yield on three-month T-bills is the explanatory variable. We assumed that the cointegration parameter was one in the equation hy, = a + hy3,-1 + u.. Now, add the lead change, Ahy3, the contemporaneous change, Ahy3, 1, and the lagged change, Ahy3,-2, of hy3,1. That is, estimate the equation hy, a+Bhy3+ Ahy3, + Ahy3+ pAhy3+e, and report the results in equation form. Test H: B = 1 against a two- sided alternative. Assume that the lead and lag are sufficient so that (hy3, is strictly exogenous in this equation and do not worry about serial correlation.

(ii) To the error correction model in (18.39), add Ahy3,-, and (hyb hy3,-3). Are these terms jointly significant? What do you conclude about the appropriate error correction model?