Discuss how to construct valid tests of the hypotheses

Reference no: EM13662363

The EViews workfile and Excel worksheet contain monthly U.S. data, from February 1959 to February 1996, on the three-month laeasury bill rate (R), the growth rate of the index of industrial production (GIP), the growth rate of nominal money supply (GM), and the growth rate of the producer price index (GP). A model for the Treasury bill rate is:

Rt = β_o+ β₁GIP_t + β₂GM_t + β₃GP_t + u_t, t = 1,..........., 445,

where u_t is an unobservable random disturbance.

(a) Fit the model to the data using OLS.

(b) Comment on the goodness of fit of the estimated model.

(d) Test the hypothesis that β_1,β_{2, and} β₃are jointly equal to zero (at the 5% significance level).

(e) Test the hypothesis H_o : β₂ = - β₁against H₁ β₁ ≠ - β₁ (at the 5% significance level).

(f) Under what assumptions about u_t are the tests in (c), (d) and (e) valid? Test whether these assumptions are satisfied in your model.

(g) If the assumptions you state in (f) are not satisfied, discuss how to construct valid tests of the hypotheses in (c), (d) and (e), and carry them out.

(h) Test the hypothesis that the coefficients of the model underwent a structural change in 1979:10.

Reference no: EM13662363

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