The index of industrial production (IP t ) is a monthly time series that measures the quantity
Question:
The index of industrial production (IPt) is a monthly time series that measures the quantity of industrial commodities produced in a given month. This problem uses data on this index for the United States. All regressions are estimated over the sample period 1986:M1 to 2013:M12 (that is, January 1986 through December 2013). Let Yt =1200*ln(IPt/IPt-1)
Suppose that a forecaster estimates the following AR(4) model for Yt:
Worried about a potential break, the forecaster computes a QLR test (with 15% trimming) on the constant and AR coefficients in the AR(4) model. The resulting QLR statistic was 3.94. Is there evidence of a break?
The 5% critical value is 3.55
The 1% critical value is 4.53
Based on this information, is there evidence of a break at the 5% level of significance? (Type Yes or No) Yes
Based on this information, is there evidence of a break at the 1% level of significance? (Type Yes or No) NO
The forecaster augments the AR(4) model for IP growth from Question 6 to include four lagged values of ΔRt, where Rt is the interest rate on 3-month U.S. Treasury bills (measured in percentage points at an annual rate).
The Granger-causality F-statistic on the four lags of ΔRt is 4.16. Do interest rates help predict IP growth?
The 1% critical value is ?
Based on this information, do interest rates help predict IP growth? (Type Yes or No)
Expert Answer:
IP is a monthly time series that is helpful in measuring number of manufactur... View the full answer
International Financial Management
ISBN: 978-0132162760
2nd edition
Authors: Geert Bekaert, Robert J. Hodrick
