Question: These data give monthly figures for standard variable interest rates in Australia over a 4-year period. Use the data to develop an autoregressive model with

These data give monthly figures for standard variable interest rates in Australia over a 4-year period. Use the data to develop an autoregressive model with a 6-month lag. Discuss the strength of the model.

Period ........................................ Standard variable
interest rate (%)
(Year 1)
Jan. .............................................................. 8.05
Feb. ............................................................. 7.55
Mar. ............................................................ 7.30
Apr. ............................................................. 6.80
May ............................................................. 6.80
June ............................................................. 6.80
July .............................................................. 6.80
Aug. ............................................................. 6.80
Sept. ............................................................ 6.55
Oct. ............................................................. 6.30
Nov. ............................................................. 6.30
Dec. ............................................................. 6.05
(Year 2)
Jan. ............................................................. 6.05
Feb. ............................................................. 6.05
Mar. ............................................................ 6.05
Apr. ............................................................. 6.05
May ............................................................. 6.30
June ............................................................. 6.55

July .............................................................. 6.55
Aug. ............................................................ 6.55
Sept. ........................................................... 6.55
Oct. ............................................................. 6.55
Nov. ............................................................ 6.55
Dec. ............................................................. 6.55
(Year 3)
Jan. ............................................................. 6.55
Feb. ............................................................. 6.55
Mar. ............................................................ 6.55
Apr. ............................................................. 6.55
May ............................................................. 6.55
June ............................................................. 6.55
July .............................................................. 6.55
Aug. ............................................................ 6.55
Sept. ........................................................... 6.55
Oct. ............................................................. 6.55
Nov. ............................................................. 6.80
Dec. ............................................................. 7.05
(Year 4)
Jan. .............................................................. 7.05
Feb. ............................................................. 7.05
Mar. ............................................................. 7.05
Apr. ............................................................. 7.05
May ............................................................. 7.05
June ............................................................. 7.05
July ............................................................... 7.05
Aug. ............................................................. 7.05
Sept. ............................................................ 7.05
Oct. ............................................................. 7.05
Nov. ............................................................. 7.05
Dec. ............................................................. 7.05

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