How well does either trend fit the data

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Reference no: EM13881009

The accompanying table, compiled by economists Karl Case and Robert Shiller, lists average U.S. housing prices (in the form of a real, inflation- adjusted index) from 1975 to 2010.

 

 

Year

Real HousePrice Index

 

Year

Real HousePrice Index

 

Year

Real HousePrice Index

1975

104.4

1987

118.3

1999

119.5

1976

105.2

1988

122.5

2000

126.6

1977

110.5

1989

125.3

2001

133.5

1978

117.1

1990

121.0

2002

143.4

1979

120.5

1991

114.1

2003

154.5

1980

114.5

1992

111.5

2004

171.4

1981

109.0

1993

109.0

2005

191.0

1982

105.1

1994

109.3

2006

194.7

1983

105.4

1995

108.2

2007

181.1

1984

105.5

1996

107.6

2008

146.1

1985

107.5

1997

108.6

2009

130.3

1986

112.7

1998

113.4

2010

128.2

a. Using the years 1975 to 2006 (and denoting the time variable by the integers 1 to 32 for simplicity), estimate the linear time trend of housing prices. Use the same data to estimate an exponential trend. How well does either trend fit the data?

b. Now estimate two separate linear regressions-one for years 1975 to 1996 and one for 1996 to 2006. Does dividing the time series in this way make sense? How much predictive confidence would you put in the time-series regression estimated for 1996 to 2006?

Reference no: EM13881009

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