Download:  0616.dat ,  0616.xls
 

1. Y_t =  +X_t + U_t

2. Y_t =  X_t+ U_t

where

Y = GDP deflator for domestic goods

X = GDP deflator for imports

(a) How would you choose between the two models a priori? (Suggested Answer)

(b) Fit both models to the data and decide which gives a better fit. (Eviews) (Rats)

(c) What other model(s) might be appropriate for the data? ( Suggested Answer)