(Lecture 10) (13 points) Use the data in PHILLIPS for this exercise. As we mentioned in Lecture 7, instead of the static Phillips curve model, we can estimate an expectations-augmented Phillips curve of the form Ainft = Bo + Bunem+ + et, where Ainft = inft - inft-1. i. (3 points) Estimate this equation by OLS and report the results in the usual form. In estimating this equation by OLS, we assumed that the supply shock, et, was uncorrelated with unemt. If this is false, what can be said about the OLS estimator of B1? ii. (2 points) Suppose that et is unpredictable given all past information: E(etlinft-1, unemt-1, ... ) = 0. Explain why this makes unemt-1 a good IV candidate for unemt. iii. (3 points) Does unemt-1 satisfy the instrument relevance assumption? [Hint: You need to run a regression to answer this question.] iv . (5 points) Estimate the expectations augmented Phillips curve by 2SLS using unemt-1 as an IV for unemt. Report the results in the usual form and compare them with the OLS estimates from (i)