(Requires Internet Access for the Test Question)

question 31

Essay

(Requires Internet Access for the test question)
The following question requires you to download data from the internet and to load it into a statistical package such as STATA or EViews.
a. Your textbook estimates an AR(1)model (equation 14.7)for the change in the inflation rate using a sample period 1962:I - 2004:IV. Go to the Stock and Watson companion website for the textbook and download the data "Macroeconomic Data Used in Chapters 14 and 16." Enter the data for consumer price index, calculate the inflation rate, the acceleration of the inflation rate, and replicate the result on page 526 of your textbook. Make sure to use heteroskedasticity-robust standard error option for the estimation.
b. Next find a website with more recent data, such as the Federal Reserve Economic Data (FRED)site at the Federal Reserve Bank of St. Louis. Locate the data for the CPI, which will be monthly, and convert the data in quarterly averages. Then, using a sample from 1962:I - 2009:IV, re-estimate the above specification and comment on the changes that have occurred.
c. Based on the BIC, how many lags should be included in the forecasting equation for the change in the inflation rate? Use the new data set and sample period to answer the question.

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Definitions:

Articular Cartilage

A smooth, white tissue that covers the ends of bones where they come together to form joints.

Plantar Flexion

The movement of the foot that increases the angle between the sole of the foot and the back of the leg, like pointing the toes.

Dorsiflexion

The movement that elevates the foot upwards towards the shin, decreasing the angle between the dorsum of the foot and the leg.

Circumduction

A circular movement of a limb or eye where the end follows a circular path.