The file \(g f c\) contains data about economic activity in two major economies: the United States and the Euro Area (the group of countries in Europe where the Euro currency is the legal tender). Specifically, the data are the logs of their GDP, standardized so that the value of GDP is equal to 100 in 2000 . The levels and the change in economic activity are shown in Figure 13.10

(a) and (b). The sample period is from 1995Q1 to 2009Q4 and includes the global financial crisis that began in September 2007.

a. Based on a visual inspection of the data, what would you infer about the interactions between the GDPs in the two economies?

b. Do the economies have a long-run relationship? Specify the econometric model and estimate the model. Plot the residuals and comment on their properties.

c. Do the economies have a short-run relationship? Specify the econometric model and estimate the model. Plot the residuals and comment on their properties.

Transcribed Image Text:

4.8 4.7- 4.6 EURO 4.5 4.4 USA 4.3 1996 1998 2000 2002 2004 2006 2008. (a) 0.02 USA 0.01 0.00 EURO -0.01 -0.02- -0.03 1996 1998 2000 2002 2004 2006 2008 FIGURE 13.10 Logs of GDP (a) and change in logs of GDP (b). (b)