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Use the data in VOLAT.RAW for this exercise.
(i) Estimate an AR(3) model for pcip. Now, add a fourth lag and verify that it is very insignificant.
(ii) To the AR(3) model from part (i), add three lags of pcsp to test whether pcsp Granger causes pcip. Carefully, state your conclusion.
(iii) To the model in part (ii), add three lags of the change in i3, the three-month T-bill rate. Does pcsp Granger cause pcip conditional on past Δi3? |
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