The regression output gives the result of regressing LGELEC, the logarithm of consumer expenditure on electricity, on LGDPI, the logarithm of disposable personal income, LGPRELEC, the logarithm of a relative price index for electricity, and LGELEC lagged one year, using annual aggregate data for the United States for the period 1960 - 1994. Potential problems of nonstationarity may be ignored. LGELEC = -0.0367 +0.0753LGDPI 0.0447PRELEC + 0.9161LGELEC(-1) R = 0.998 (0.836) (0.135) (0.052) (0.100) 1.1. [5 marks] Show how this regression specification could be derived from a partial adjustment model. 1.2. [5 marks] Explain the short-run and long-run dynamics inherent in such a model. 1.3. [5 marks] Give an economic interpretation of the regression results, paying attention to both short-run and long-run dynamics. 1.4. [5 marks] Comment on the plausibility of the estimated short-run and long-run effects. 1.5. [5 marks] At a seminar, a commentator points out that the regression specification could also have been derived from an adaptive expectations model. State whether the adaptive expectations model might be a more suitable framework for this model. (Note: a mathematical demonstration that the regression specification could have been derived from an adaptive expectations model is not required and no credit will be given for it). 1.6. [5 marks] Another commentator notes that the t statistics for the coefficients of LGDPI and LGPRELEC are low and argues that those variables should therefore be dropped from the regression model. State the arguments for and against this.