Question: Use the data in PHILLIPS to answer these questions. (i) Using the entire data set, estimate the static Phillips curve equation inft 5 b0 1

Use the data in PHILLIPS to answer these questions.

(i) Using the entire data set, estimate the static Phillips curve equation inft 5 b0 1 b1 unemt 1 ut by OLS and report the results in the usual form.

(ii) Obtain the OLS residuals from part (i), u^t

, and obtain r from the regression u^t on u^t21. (It is fine to include an intercept in this regression.) Is there strong evidence of serial correlation?

(iii) Now estimate the static Phillips curve model by iterative Prais-Winsten. Compare the estimate of b1 with that obtained in Table 12.2. Is there much difference in the estimate when the later years are added?

(iv) Rather than using Prais-Winsten, use iterative Cochrane-Orcutt. How similar are the final estimates of r? How similar are the PW and CO estimates of b1?

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