Use the data in TRAFFIC2.RAW for this exercise. Computer Exercise C10.11 previously asked for an analysis of
Question:
(i) Compute the first order autocorrelation coefficient for the variable prcfat. Are you concerned that prcfat contains a unit root? Do the same for the unemployment rate.
(ii) Estimate a multiple regression model relating the first difference of prcfat, (prcfat, to the same variables in part (vi) of Computer Exercise CI0.11, except you should first difference the unemployment rate, too. Then, include a linear time trend, monthly dummy variables, the weekend variable, and the two policy variables; do not difference these. Do you find any interesting results?
(iii) Comment on the following statement: "We should always first difference any time series we suspect of having a unit root before doing multiple regression because it is the safe strategy and should give results similar to using the levels." [In answering this, you may want to do the regression from part (vi) of Computer Exercise C 10.11, if you have not already.]
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Related Book For
Introductory Econometrics A Modern Approach
ISBN: 978-0324660548
4th edition
Authors: Jeffrey M. Wooldridge
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