Problems Caused by Stochastic Trends Include All of the Following

question 25

Multiple Choice

Problems caused by stochastic trends include all of the following with the exception of

• A)the estimator of an AR(1)is biased towards zero if it's true value is one.
• B)the model can no longer be estimated by OLS.
• C)t-statistics on regression coefficients can have a nonnormal distribution, even in large samples.
• D)the presence of spurious regression..

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Definitions:

Nominal Wages

The amount of money an employee is paid before adjustments for inflation, reflecting the current value of money.

Real Wages

The purchasing power of wages, adjusted for inflation, showing how many goods and services can be bought with a unit of labor.

Phillips Curve

An economic theory suggesting an inverse relationship between the rate of inflation and the rate of unemployment within an economy.

Policy Makers

Individuals or bodies responsible for formulating and implementing public policies, laws, and regulations, often within governmental or legislative institutions.