The civilian unemployment rate (UER) is an important component of many economic models. Table 1 gives regression statistics from estimating a linear trend model of the unemployment rate: UERt = b0 + b1t + εt.
TABLE 1 Estimating a Linear Trend in the Civilian Unemployment Rate Monthly Observations,
January 1996-December 2000
Regression Statistics
R-squared………………………….0.9314
Standard error……………………..0.1405
Observations…………………………..60
Durbin-Watson…………………..0.9099
A. Using the regression output in the above table, what is the model’s prediction of the unemployment rate for July 1996, midway through the first year of the sample period?
B. How should we interpret the Durbin-Watson (DW) statistic for this regression? What does the value of the DW statistic say about the validity of a t-test on the coefficient estimates?
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