Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 16

Using the monthly data in VOLAT.RAW, the following model was estimated:

where pcip is the percentage change in monthly industrial production, at an annualized rate, andpcsp is the percentage change in the Standard&Poor's 500 Index, also at an annualized rate.

(i) If the past three months of pcip are zero and pcsp-1 = 0, what is the predicted growth in industrial production for this month? Is it statistically different from zero?

(ii) If the past three months of pcip are zero but pcsp -1 = 10, what is the predicted growth in industrial production?

(iii) What do you conclude about the effects of the stock market on real economic activity?

Step 1 of 3

i)

This is given by the estimated intercept, 1.54. Remember, this is the percentage growth at an annualized rate. It is statistically different from zero since .