(Requires Appendix material)The long-run, stationary state solution of an AD(p,q)model, which can be written as A(L)Y_t = ?₀ + c(L)X_t_-₁ + u_t, where $a _ { 0 }$ = 1, and $a _ { j }$ = -?_j, c_j = ?_j, can be found by setting L=1 in the two lag polynomials. Explain. Derive the long-run solution for the estimated ADL(4,4)of the change in the inflation rate on unemployment:
$\widehat { \Delta I n f }$ _t = 1.32 - .36 ?Inf_t_-₁ - 0.34vInf_t_-₂+ 0.7?Inf_t_-₃ - 0.3?Inf_t_-₄
-2.68Unemp_t_-₁+ 3.43Unemp_t_-_{2 -}1.04Unemp_t_-₃+ .07Unemp_t_-₄
Assume that the inflation rate is constant in the long-run and calculate the resulting unemployment rate. What does the solution represent? Is it reasonable to assume that this long-run solution is constant over the estimation period 1962-1999? If not, how could you detect the instability?

Question

(Requires Appendix material)The long-run, stationary state solution of an AD(p,q)model, which can be written as A(L)Y_t = ?₀ + c(L)X_t_-₁ + u_t, where

a _ { 0 }

= 1, and

a _ { j }

= -?_j, c_j = ?_j, can be found by setting L=1 in the two lag polynomials. Explain. Derive the long-run solution for the estimated ADL(4,4)of the change in the inflation rate on unemployment:

\widehat { \Delta I n f }

_t = 1.32 - .36 ?Inf_t_-₁ - 0.34vInf_t_-₂+ 0.7?Inf_t_-₃ - 0.3?Inf_t_-₄
-2.68Unemp_t_-₁+ 3.43Unemp_t_-_{2 -}1.04Unemp_t_-₃+ .07Unemp_t_-₄
Assume that the inflation rate is constant in the long-run and calculate the resulting unemployment rate. What does the solution represent? Is it reasonable to assume that this long-run solution is constant over the estimation period 1962-1999? If not, how could you detect the instability?

Quizplus · Accepted Answer

The Answer of (Requires Appendix material)The long-run, stationary state solution of an AD(p,q)model, which can be written as A(L)Y_t = ?₀ + c(L)X_t_-₁ + u_t, where $a _ { 0 }$ = 1, and $a _ { j }$ = -?_j, c_j = ?_j, can be found by setting L=1 in the two lag polynomials. Explain. Derive the long-run solution for the estimated ADL(4,4)of the change in the inflation rate on unemployment: $\widehat { \Delta I n f }$ _t = 1.32 - .36 ?Inf_t_-₁ - 0.34vInf_t_-₂+ 0.7?Inf_t_-₃ - 0.3?Inf_t_-₄ -2.68Unemp_t_-₁+ 3.43Unemp_t_-_{2 -}1.04Unemp_t_-₃+ .07Unemp_t_-₄ Assume that the inflation rate is constant in the long-run and calculate the resulting unemployment rate. What does the solution represent? Is it reasonable to assume that this long-run solution is constant over the estimation period 1962-1999? If not, how could you detect the instability?

(Requires Appendix Material)The Long-Run, Stationary State Solution of an AD(p,q)model a0a _ { 0 }a0​

(Requires Appendix Material)The Long-Run, Stationary State Solution of an AD(p,q)model $a _ { 0 }$