You Have Collected Quarterly Canadian Data on the Unemployment and the Inflation

question 38

Essay

You have collected quarterly Canadian data on the unemployment and the inflation rate from 1962:I to 2001:IV. You want to re-estimate the $\operatorname { ADL } ( 3,1 )$ formulation of the Phillips curve using a $\mathrm { GARCH } ( 1,1 )$ specification. The results are as follows:
$$\begin{aligned}\widehat { \Delta \operatorname { Inf } f _ { t } } = & 1.17 - .56 \Delta \operatorname { Inf } f _ { t - 1 } - .47 \Delta \operatorname { Inf } f _ { t - 2 } - .31 \Delta \operatorname { Inf } _ { t - 3 } - .13 \text { Unemp } _ { t - 1 } \\& ( .48 ) ( .08 )\quad\quad\quad\quad \quad(.10)\quad\quad\quad\quad\quad(.09)\quad\quad\quad\quad(.06)\\\hat { \sigma } _ { t } ^ { 2 } = & .86 + .27 u _ { t - 1 } ^ { 2 } + .53 \sigma _ { t - 1 } ^ { 2 } . \\& ( .40 ) ( .11 )\quad\quad(.15)\end{aligned}$$ (a) Test the two coefficients for $u _ { t - 1 } ^ { 2 }$ and $\sigma _ { t - 1 } ^ { 2 }$ in the GARCH model individually for statistical significance.

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Definitions:

Gross Sales

The total revenue generated from sales of goods or services before any deductions are made, such as returns, allowances, and discounts.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials and labor.

Activity Based Costing

A costing method that assigns overhead and indirect costs to related products and services based on the activities that consume resources.

Costs Allocation

The process of assigning indirect costs to different departments, projects, or products to accurately reflect the expenses incurred.