# Use the data in Exercise 13.28.To familiarize yourself with recursive least squares, estimate the savings functions for

## Question:

**Data from exercise 12.28**

Refer to the following table, which gives data on personal savings (Y) and personal disposable income (X) for the period 1970€“2005. Now consider the following models:

How would you choose between these two models? State clearly the test procedure(s) you use and show all the calculations. Suppose someone contends that the interest rate variable belongs in the savings function. How would you test this? Collect data on the 3-month treasury bill rate as a proxy for the interest and demonstrate your answer.

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## Step by Step Answer:

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