The following table gives the regression output of an AR(1) model on first differences in the unemployment
Question:
The following table gives the regression output of an AR(1) model on first differences in the unemployment rate.
Assume that changes in the civilian unemployment rate are covariance stationary and that an AR(1) model is a good description for the time series of changes in the unemployment rate.
1. Describe how to interpret the DW statistic for this regression.
2. What is the mean-reverting level to which changes in the unemployment rate converge?
3. The current change (first difference) in the unemployment rate is 0.0300. Assume that the mean-reverting level for changes in the unemployment rate is -0.0276.
A. What is the best prediction of the next change?
B. What is the prediction of the change following the next change?
Quantitative Investment Analysis
ISBN: 978-1119104223
3rd edition
Authors: Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle