The EViews workfile and Excel worksheet contain monthly U.S. data, from February 1959 to February 1996, on the three-month laeasury bill rate (R), the growth rate of the index of industrial production (GIP), the growth rate of nominal money supply (GM), and the growth rate of the producer price index (GP). A model for the Treasury bill rate is:
Rt = βo+ β1GIPt + β2GMt + β3GPt + ut, t = 1,..........., 445,
where ut is an unobservable random disturbance.
(a) Fit the model to the data using OLS.
(b) Comment on the goodness of fit of the estimated model.
(c) Test the hypothesis Ηo: β1 = 0 against H1 : β1 < 0 at the 5% significance level.
(d) Test the hypothesis that β1, β2, and β3 are jointly equal to zero (at the 5% significance level).
(e) Test the hypothesis Ho : β2 = - β1 against H1 β1 ≠ - β1 (at the 5% significance level).
(f) Under what assumptions about ut are the tests in (c), (d) and (e) valid? Test whether these assumptions are satisfied in your model.
(g) If the assumptions you state in (f) are not satisfied, discuss how to construct valid tests of the hypotheses in (c), (d) and (e), and carry them out.
(h) Test the hypothesis that the coefficients of the model underwent a structural change in 1979:10.