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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, and pcsp 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? |
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