Basic Econometrics 5th Edition by Damodar Gujarati,Dawn Porter

تمرين 5

To study the relationship between inflation and yield on common stock, Bruno Oudet used the following model:
*"Some Further Evidence on Supply and Demand Functions for Money,'' journal of Finance, vol. 19, May 1964, pp. 240-283.
†"Demand and Supply Functions for Money in the United States,'' Econometrica, vol. 32, no. 4, October 1964, pp. 476-509.
*Bruno A. Oudet, "The Variation of the Return on Stocks in Periods of Inflation,'' journal of Financial and Quantitative Analysis, vol. 8, no. 2, March 1973, pp. 247-258.
where L = real per capita monetary base
Y = real per capita income
I = the expected rate of inflation
NIS = a new issue variable
E = expected end-of-period stock returns, proxied by lagged stock price ratios
R bt = bond yield
R st = common stock returns
a. Offer a theoretical justification for this model and see if your reasoning agrees with that of Oudet.
b. Which are the endogenous variables in the model Which are the exogenous variables
c. How would you treat the lagged R bt -endogenous or exogenous