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:

Transference

The phenomenon in psychotherapy where patients project feelings or attitudes from past relationships onto their therapist.

Sigmund Freud

An Austrian neurologist known for founding psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Client-Centered

A psychotherapeutic approach developed by Carl Rogers that emphasizes the importance of listening to the client and providing a supportive environment for self-discovery.

Cognitive

Concerning the cognitive functions used in gaining understanding and insight, such as cognition, recognition, recollection, evaluation, and resolving issues.