This exercise also uses the data from VOLAT.RAW. Computer Exercise 18.11 studies the long-run relationship between stock prices and industrial production. Here, you will study the question of Granger causality using the percentage changes.
(i) Estimate an AR(3) model for pcipt the percentage change in industrial production (reported at an annualized rate). Show that the second and third lags are jointly significant at the 2.5% level.
(ii) Add one lag of pcspt to the equation estimated in part (i). Is the lag statistically significant? What does this tell you about Granger causality between the growth in industrial production and the growth in stock prices?
(iii) Redo part (ii) but obtain a heteroskedasticity-robust t statistic. Does the robust test change your conclusions from part (ii)?