Homework 2
In the following exercises yield and interpret parameter estimates and
perform a complete residual analysis.
* Blanchard (2000) uses in equation 9.2 not 3.5 % for the average
growth of the potential output, but 3.0 %. Estimate this equation for
the period 1960 till 1998 and evaluate the validity of his conclusions.
Divide the estimation period into the period from 1960 till 1973 and
the subsequent period 1974 till 1998 and compare the results. What
kind of conclusions can you draw?
* Okun suggest two alternative equations in his article. The first is
ut = 0 + 1 gapt,
with gapt = YPt / Yt -1, where the potential output YPt is determined
by a trend line, which passes through the mean for the 1955 GNP
with a slope of 3.5%.
Hint: you can produce the required
variable by the transformation
beside.
* The second of Okun's alternative equations is
log (100-ut) = 0 + 1 log Yt + 2t,
with the inclusion of a time trend as an additional regressor. The
potential output can now be calculated as YPt = -
^
2 /
^
1.
Hint: The evaluation for regressions with more than one substantial
regressor can be achieved by the trend-elimination trick of chapter 1..