The data file usdata5 contains the data on inflation displayed in Figure 12.1.

a. Is inflation stationary or nonstationary? Explain your choice of test equation.

b. What is the order of integration of inflation?

c. Construct and estimate a suitable model for forecasting inflation in 2017M1. What is your forecast?

Data From Figure 12.1:-

Transcribed Image Text:

18- 16- 14- 12- 10- 8- 0.3 13 0.2 0.1 0.0- -0.1 -0.2- -0.3- 6mm 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 (a) Real gross domestic product (GDP), Strillion (quarterly) -0.4 pppsproprspor 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 (b) Change in GDP (quarterly) 16- 3 2 I- 0- INF 12- -1- -2- 55 60 65 70 75 80 85 90 95 00 05 10 15 (c) Inflation, percent (monthly) -3 55 60 65 70 75 80 85 90 95 00 05 10 15 (d) Change in inflation (monthly)