Econometrics calculations
Use general-to-specific to come to a model. Start by regressing the federal funds rate on the other 7 variables and eliminate 1 variable at a time. Use specific-to-general to come to a model. Start by regressing the federal funds rate on only a constant and add 1 variable at a time. Is the model the same as in (a)? Compare your model from (a) and the Taylor rule of equation (1). Consider R2, AIC and BIC. Which of the models do you prefer? Test the Taylor rule of equation (1) using the RESET test, Chow break and forecast test (with in both tests as break date January 1980) and a Jarque-Bera test. What do you conclude? All answers must be correct. Don’t bid if you can’t solve them. I will share all the lectures slides with the scholar who gets the project. See attched files for more details.
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