Question: We will consider a nonlinear AR(1) model for gdp growth rates Yt m(Yt1)et Yt 100 GDPt GDPt1 4 1 (a) Create GDP growth

We will consider a nonlinear AR(1) model for gdp growth rates Yt Æm(Yt¡1)Ået Yt Æ 100

µµ

GDPt GDPt¡1

¶4

¡1

(a) Create GDP growth rates Yt . Extract the level of real U.S. GDP (gdpc1) from FRED-QD and make the above transformation to growth rates.

(b) Use Nadaraya-Watson to estimatem(x). Plot with 95% confidence intervals.

(c) Repeat using the Local Linear estimator.

(d) Do you see evidence of nonlinearity?

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