e evidence that the Phillips curve has been unstable during the 196 e U period f
ID: 3326615 • Letter: E
Question
e evidence that the Phillips curve has been unstable during the 196 e U period for th nited States, and 2 to 1999 case, due to i are similar to that of the U.S. casednot this instabilitvalcular duing the 1990s. You set out to investigate so occured in other places. Canada is a particularly interesting of its economy ts proximity to the United States and the fact that many features Reading up on some of the comparative economicC pes unemployment rt performance literature, you find that Cana- unemployment rates from the 1920s employment rates were roughly the same as U.S. to the early 1980s. Th ment u e accompanying figure shows th rates of the two countries in 1982, which has persisted to this date. at a gap opened between the unemploy- 14 12 10 8 6 2 95 65 70 U.s. Unemployment Rate URCAN a) 12 Points] Inspection of the graph and data suggest that the break occured during the second quarter of 1982. To investigate whether the Canadian Phillips curve shows a break at that point, you estimate an ADL(4,4) model, using inflation rate as a regressor, for the sample period 1962:1-1999:IV and perform a Chow test. Specifically you postulate that the constant and coefficients of the lags of the unemployment rate changed at that point. The F-statistic is 1.96. Find the critical value from the F-table on page 13 and test the null hypothesis that a break occured at that time. Is there any reason why you should be skeptical about the result regarding the break and using the Chow-test to detect it?Explanation / Answer
?Reading is taken from 1962 to 1999.
In the question ,the total number of obeservation in each sample is 38.
Thus N1=N2=38 (N1 =reading of USA, N2=Reading of Canada)
k=3 (total number of paramenters in the regression equation)
Thus we need to find the F distribution at k and (N1+N2-2k) degrees of freedom.
From data table we see that F statistic at ( 3,70) is 2.7355.(at 95% confidence level)
This F statistic value will be the critical value of F.
Hence it is F critical =2.7355
Now we have hypothesied(H0) that the break occured at a given point intime .The f statistic for this is 1.96.
Clearly this is less than the crical value (2.7355) and hence the null hypothesis that the break occured at a given point in time is correct.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.