The data set Money has quarterly data on US money demand (more specifically, on demand for...
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The data set Money has quarterly data on US money demand (more specifically, on demand for M1); the variables are described below. A money demand model is specified as following: log(ml,)=B, +B, log(GDP)+B,rs, +B, inf,+u,, where t indexes quarters, inf, 100 x (pr, -pr.)/pr, is the year-over-year inflation rate in the price index (pr), and u, is the error term of the model. (1) Use the sample period 1952:1-1992:4 to estimate the model by OLS and interpret the meanings of B, and B... (2) Based on your estimation result, does money demand depend significantly on inflation rate (using 5% significance level)? (3) Now use an appropriate method to find the exact structure of serial correlation in u, of the model above (use 4 lags). Estimate the model above by adjusting for serial correlation and answer the question in part (2) again. Has your answer changed? If yes, why? (4) Use the model estimated in part (3) and the out-of-sample period 1993:1-1996:4 to do: (1) Statis forecast; (ii) Dynamic forecast; (iii) Draw the 95% forecast intervals for static and dynamic forecasts, respectively; and (iv) Compare static and dynamic forecast performances, which forecast is more accurate? The data set Money has quarterly data on US money demand (more specifically, on demand for M1); the variables are described below. A money demand model is specified as following: log(ml,)=B, +B, log(GDP)+B,rs, +B, inf,+u,, where t indexes quarters, inf, 100 x (pr, -pr.)/pr, is the year-over-year inflation rate in the price index (pr), and u, is the error term of the model. (1) Use the sample period 1952:1-1992:4 to estimate the model by OLS and interpret the meanings of B, and B... (2) Based on your estimation result, does money demand depend significantly on inflation rate (using 5% significance level)? (3) Now use an appropriate method to find the exact structure of serial correlation in u, of the model above (use 4 lags). Estimate the model above by adjusting for serial correlation and answer the question in part (2) again. Has your answer changed? If yes, why? (4) Use the model estimated in part (3) and the out-of-sample period 1993:1-1996:4 to do: (1) Statis forecast; (ii) Dynamic forecast; (iii) Draw the 95% forecast intervals for static and dynamic forecasts, respectively; and (iv) Compare static and dynamic forecast performances, which forecast is more accurate?
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Money Demand Model Analysis This response provides a framework for analyzing the money demand model but cannot perform actual estimation or forecasting due to software limitations 1 OLS Estimation and ... View the full answer
Related Book For
Applied Regression Analysis and Other Multivariable Methods
ISBN: 978-1285051086
5th edition
Authors: David G. Kleinbaum, Lawrence L. Kupper, Azhar Nizam, Eli S. Rosenberg
Posted Date:
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