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Question: The Phillips Curve is one of the most famous empirical relationships in macroeconomics. It de-scribes a negative relationship between the unemployment rate and the rate of inflation. The dataset for this problem contains three variables; year, unemployment rate (U,), and Intl = inflation rate for the years 1954 through 1989. It can be found in http://www.wiley. corn/college/ashenfelter.

a. For the period 1954-1967, estimate the model

U_t = a + bInfl₁ + ε_t

b. What is the meaning of the slope and intercept terms in this model?

c. Estimate the model for the full sample period. What are the estimated slope and intercept coefficients now?

d. Graph the data using a scatterplot. Can you see why the coefficients change so much?

e. What assumptions of the regression model are unlikely to be satisfied by these data?

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Statistics and Probability, Statistics

Category:- Statistics and Probability
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