Introduction to Econometrics 3rd Edition by James Stock, Mark Watson

Exercise 7

The forecaster in Exercise 14.2 augments her AR(4) model for IP growth to include four lagged values of R t , where R t is the interest rate on three-month U.S. Treasury bills (measured in percentage points at an annual rate).
a. The Granger-causality F -statistic on the four lags of R t is 2.35. Do interest rates help to predict IP growth Explain.
b. The researcher also regresses R t on a constant, four lags of R t and four lags of IP growth. The resulting Granger-causality E-statistic on the four lags of IP growth is 2.87. Does IP growth help to predict interest rates Explain.