Table 17.13 gives some macroeconomic data for the Greek economy for the years 19601995. Consider the following

Question:

Table 17.13 gives some macroeconomic data for the Greek economy for the years 1960€“1995. Consider the following consumption function:

Where PC_t^* = real desired private consumption expenditure at time t; PDI_t = real private disposable income at time t; LTI_t = long-term interest rate at time t; and ln stands for natural logarithm.

a. From the data given in the following table, estimate the previous consumption function, stating clearly how you measured the real desired private consumption expenditure.

b. What econometric problems did you encounter in estimating the preceding consumption function? How did you resolve them? Explain fully.