Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Exercise 17

In, we wrote the model that explicitly contains the long-run propensity, 0 , as
where we omit the other explanatory variables for simplicity. As always with multiple regression analysis, 0 should have a ceteris paribus interpretation. Namely, if pet increases by one (dollar) holding (pet-1 - pet) and (pet-2 - pet) fixed, gfrt should change by 0.
(i) If (pe t-1 - pe t ) and (pe t-2 - pe t ) are held fixed but pet is increasing, what must be true about changes in pe t-1 and pe t-2
(ii) How does your answer in part (i) help you to interpret dQ in the above equation as the LRP