Consider the following model unet = 0.05-t -0.5t-1 +1.5t-2 + unet-1 (0.01) (0.1) (1) (0.25) (0.1)...

 

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Consider the following model unet = 0.05-t -0.5t-1 +1.5t-2 + unet-1 (0.01) (0.1) (1) (0.25) (0.1) where unet is the unemployment rate at time t; t is the inflation rate at time t. (SE are in parenthesis). 1. What is the interpretation of the intercept coefficient? 2. What is the 2-period cumulative effect of inflation on unemployment? Interpreting this effect as the "long run" effect of inflation on unemployment; what does the regression tell you about the "short run" effect of inflation vs. the "long run" effect. 3. (a) Suppose that at time T, T = 0.02 and T1 = T-2 = 0 and uneT-1 = 0.04 what is your prediction of unemployment at time T? (b) Suppose the actual value of unemployment at time T, was unT = 0.05, is your forecast error positive or negative? Consider the following model unet = 0.05-t -0.5t-1 +1.5t-2 + unet-1 (0.01) (0.1) (1) (0.25) (0.1) where unet is the unemployment rate at time t; t is the inflation rate at time t. (SE are in parenthesis). 1. What is the interpretation of the intercept coefficient? 2. What is the 2-period cumulative effect of inflation on unemployment? Interpreting this effect as the "long run" effect of inflation on unemployment; what does the regression tell you about the "short run" effect of inflation vs. the "long run" effect. 3. (a) Suppose that at time T, T = 0.02 and T1 = T-2 = 0 and uneT-1 = 0.04 what is your prediction of unemployment at time T? (b) Suppose the actual value of unemployment at time T, was unT = 0.05, is your forecast error positive or negative?

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1 The interpretation of the intercept coefficient 005 in the model is the baseline level of unemploy... View the full answer