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The data used to fit the expectations augmented Phillips curve in Example 12.3 are given in Table F5.1. Using these data, reestimate the model given in the example. Carry out a formal test for first order autocorrelation using the LM statistic. Then, reestimate the model using an AR(1) model for the disturbance process. Since the sample is large, the Prais–Winsten and Cochrane–Orcutt estimators should give essentially the same answer. Do they? After fitting the model, obtain the transformed residuals and examine them for first order autocorrelation. Does the AR(1) model appear to have adequately “fixed” the problem? |
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