You Have Re-Estimated the Two Variable VAR Model of the Change

question 7

Essay

You have re-estimated the two variable VAR model of the change in the inflation rate and the unemployment rate presented in your textbook using the sample period 1982:I (first quarter)to 2009:IV. To see if the conclusions regarding Granger causality of changed, you conduct an F-test for this new sample period. The results are as follows: The F-statistic testing the null hypothesis that the coefficients on Unemp_t-1, Unemp_t-2, Unemp_t-3, and Unempl_t-4 are zero in the inflation equation (Equation 16.5 in your textbook)is 6.04. The F-statistic testing the hypothesis that the coefficients on the four lags of ΔInf_t are zero in the unemployment equation (Equation 16.6 in your textbook)is 0.80.
a. What is the critical value of the F-statistic in both cases?
b. Do you think that the unemployment rate Granger-causes changes in the inflation rate?
c. Do you think that the change in the inflation rate Granger-causes the unemployment rate?

---

Definitions:

Competitors

Companies or entities that are in the same industry and compete against each other for market share by offering similar products or services.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers, typically downward sloping.

Long-Run Equilibrium

A state in economics where all factors of production are variable, leading to a situation where all firms in a competitive market make zero economic profit.

Marginal Revenue

The additional income received from selling one more unit of a product or service.