Question: NOTHING IS MISSING USING GIVEN INFORMATION ANSWER THE QUESTION d. The longrun parameter estimates of the VECM, B, has the following form: 1.000000 0.000000 0.000000

NOTHING IS MISSING USING GIVEN INFORMATION ANSWER THE QUESTION

d. The longrun parameter estimates of the VECM, B, has the following form: 1.000000 0.000000 0.000000 0.000000 0.000000 0.000000 1 .000000 0.000000 0.000000 0.000000 0.000000 0.000000 1 .000000 0.000000 0.000000 5 = 0.000000 0.000000 0.000000 1.000000 0.000000 0.000000 0.000000 0.000000 0.000000 1 .000000 6.964151 4.032363 6.976260 4.104674 4.075952 (0.15466) (0.01964) (0.00636) (0.06520) (0.12167) [-6.36344] [-52.0367] [417.004] [42.9675] [-6.64352] Interpret the parameters and explain how these estimates are related to the expectations theory. [4 marks] e. Do you agree that a VECM allows to capture the short-run dynamics between the interest rates? Explain your answer. [4 marks] f. If a VECM with the different interest rates would have a zero rank, what model should we use? [2 marks] [Total of Question 2 = 20 marks]

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