For Exercises 13.38 and 13.39, see page 690.

Question 13.39

13.39 Unemployment rate.

Let denote the unemployment rate for time period .

  1. Use software to fit a simple linear regression model, using as the response variable and as the explanatory variable. Record the estimated regression equation.
  2. Test the residuals for randomness. Does it appear that the AR(1) accounts for the systematic movements in the unemployment series? Explain.
  3. Use the fitted AR(1) model from part (a) to obtain forecasts for the unemployment rate in 2014, 2015, and 2016. What do you notice about the forecast values? In what way are they similar to the forecast values shown in Figure 13.40 (page 686)?

13.39

(a) . (b) The plot of the residuals against time shows a slight pattern, but overall, it is fairly random. The ACF confirms that the residuals are indeed random. The AR(1) does account for some of the systematic movements in unemployment rates. (c) . They revert to the overall mean.

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