Question: Continue with Exercise 13.29, but now use the updated data in Table 8.10. a. Suppose you estimate the savings function for 19701981. Using the parameters

Continue with Exercise 13.29, but now use the updated data in Table 8.10.

a. Suppose you estimate the savings function for 1970–1981. Using the parameters thus estimated and the personal disposable income data from 1982–2000, estimate the predicted savings for the latter period and use Chow’s prediction failure test to find out if it rejects the hypothesis that the savings function between the two time periods has not changed.

b. Now estimate the savings function for the data from 2000–2005. Compare the results to the function for the 1982–2000 period using the same method as above (Chow’s prediction failure test). Is there a significant change in the savings function between the two periods?

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