Can I ask some help to solve this problem set? What command should I use?
Q. Let us define the logarithm of real effective exchange rate (REER) of Belgium, Greece, and Italy (say, y1,t, y2,t and y3,t) and set the model that specifies a potential relationship between two of the selected economies, yi,t and yj,t -select the pair of economies of your wish:
yi,t = β0 + β1 yj,t + ut, (1)
with { i, j } = {1, 2, 3}, i ≠ j
※The data of REER for 23 developed countries is obtained from the International Financial Statistics of the International Monetary Fund database, quarterly frequency, from 1979:Q1 to 2020:Q4.
1. Test the order of integration of the time series involved in your model specification.
2. Estimate the parameters of the model by OLS and discuss the main features that characterize the estimation output.
3. Test for the presence of a potential long-run relationship among these variables using the ADF test statistic proposed in Engle and Granger (1987) - use a maximum of p = 5 lags for the ADF
computation.
4. In case that evidence of a long-run relationship is found, obtain a consistent and efficient estimation of the parameters of the model.
Q. Let us define the logarithm of real effective exchange rate (REER) of Belgium, Greece, and Italy (say, y1,t, y2,t and y3,t) and set the model that specifies a potential relationship between two of the selected economies, yi,t and yj,t -select the pair of economies of your wish:
yi,t = β0 + β1 yj,t + ut, (1)
with { i, j } = {1, 2, 3}, i ≠ j
※The data of REER for 23 developed countries is obtained from the International Financial Statistics of the International Monetary Fund database, quarterly frequency, from 1979:Q1 to 2020:Q4.
1. Test the order of integration of the time series involved in your model specification.
2. Estimate the parameters of the model by OLS and discuss the main features that characterize the estimation output.
3. Test for the presence of a potential long-run relationship among these variables using the ADF test statistic proposed in Engle and Granger (1987) - use a maximum of p = 5 lags for the ADF
computation.
4. In case that evidence of a long-run relationship is found, obtain a consistent and efficient estimation of the parameters of the model.
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