Question: The model: CEt = 1 + 2YDt + 3CEt1 + vt (10.41) (where CE = aggregate consumer expenditure and YD = personal disposable income) was

The model:

CEt = β1 + β2YDt + β3CEt−1 + vt (10.41)

(where CE = aggregate consumer expenditure and YD = personal disposable income)

was estimated by simple OLS using data for the UK economy. The results are given in Table 10.2. Is this model a satisfactory one? Explain (using the adaptive expectations hypothesis) the meaning of each of the estimated coefficients.

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