Question: Using the U.S. gasoline data in Chapter 4, problem 15, given in Table 4.2 estimate the following model with a six year lag on prices:
Using the U.S. gasoline data in Chapter 4, problem 15, given in Table 4.2 estimate the following model with a six year lag on prices:
log
QMG CAR
t
= γ1 + γ2log
RGNP POP
t
+ γ3log
CAR POP
t
+γ4
6 i=0wi log
PMG PGNP
t−i
(a) Report the unrestricted OLS estimates.
(b) Now, estimate a second degree polynomial lag for the same model. Compare the results with part
(a) and explain why you got such different results.
(c) Re-estimate part
(b) comparing the six year lag to a four year, and eight year lag. Which one would you pick?
(d) For the six year lag model, does a third degree polynomial give a better fit?
(e) For the model outlined in part (b), reestimate with a far end point constraint. Now, reestimate with only a near end point constraint. Are such restrictions justified in this case?
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