Consider the two bond yield series of the previous exercise. What is the relationship between the two series? To answer this question, take the log transformation of the data to build a time series model for the Aaa yields using Baa yields as an explanatory variable. Write down the fitted model, including model checking.

Data From Previous Exercise:

Consider again the monthly log series of Moody's Aaa bound yield. Use the exponential smoothing method to produce 1- to 12-step ahead out-of-sample forecasts at the forecast origin November 2010.