Suppose You Estimate a Static Time-Series Model of U A)How Do You Interpret the Estimated Sample Regression Function? Explain

question 10

Essay

Suppose you estimate a static time-series 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 $$\begin{array} { c } \text { Consumption } _ { t } =& - 141.454 +& 0.822 \text { Income } _ { t } \\&( 11.244 )& ( 0.002 ) \\&n = 179 \\&R ^ { 2 } = .9993\end{array}$$
a)How do you interpret the estimated sample regression function? Explain.
b)You wonder if previous values of income affect consumption.Explain how you would estimate a distributed lag model of order 2.
c)Using the model in part c,how would you test for a statistical relationship between past values of income and consumption?
d)If you thought there was a structural break in these data in 2006Q1,how would you control and test for it?

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Definitions:

Functional Currency

The currency of the primary economic environment in which an entity operates, generally the currency in which it primarily generates and expends cash.

Relative Value

A method of determining an asset's value that takes into consideration the value of similar or related assets.

Functional Currency

The currency of the primary economic environment in which the entity operates, typically used in measuring and reporting its financial results.

Remeasure

The process of adjusting the value of a financial instrument or asset to reflect its current market value.