Question: Exercise 11.2 In the previous examples using the data set WP.XLS, we have set p = q = 4 (i.e. four lags of both wage

Exercise 11.2 In the previous examples using the data set WP.XLS, we have set p = q = 4 (i.e.

four lags of both wage and price inflation). Using price inflation as the dependent variable and the sequential testing procedure outlined in Chapter 10 select optimal values for p and q. Discuss whether wage inflation causes price inflation using the ADL(p, q) model you have selected. Repeat the analysis using wage inflation as the dependent variable.

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