Refer to exercise 1.1. For each country shown there, fit the following model:

_where

_{Yit = rate of inflation in country i, i being the United Kingdom, Japan, Germany, or France at time t.}

_{Xt = the inflation rate for the United States at time t.}

_{ut = the stochastic disturbance term}
 

(a) Is there any relationship between that country's inflation rate and U.S inflation rate for each of
     the four regressions? (Eviews)

(b) How would you go about testing that relationship formally? (Suggested Answer)

(c) Can you use the model to predict the inflation rate in the four countries beyond 1980? Why or
     why no? ( Suggested Answer)