Suppose You Include a Time Trend in Your Model of U.S.Personal

question 36

Essay

Suppose you include a time trend in your model of U.S.Personal Consumption Expenditures (billions)on U.S.Personal Income (billions)using quarterly data for the period 1969Q1-2013Q3 and you get $$\begin{array} { l } \text { Consumption } _ { t } = &- 69.616 + &0.877 \text { Income } _ { t } -& 4.427 \text { Time Trend } _ { t } \\&( 13.460 )& ( 0.007 )& ( 0.572 ) \\&&n = 179 \\&&R ^ { 2 } = .9995\end{array}$$
a)Explain how to create the time trend variable.
b)Interpret the time trend variable and comment if it is statistically significant.
c)Explain how to detrend both the dependent and independent variable.

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