Using the same regression as for question 2, but on a different set of data, the researcher now obtains the estimate ˆψ = −0.52 with standard error = 0.16.

(a) Perform the test.

(b) What is the conclusion, and what should be the next step?

(c) Another researcher suggests that there may be a problem with this methodology since it assumes that the disturbances (ut ) are white noise. Suggest a possible source of difficulty and how the researcher might in practice get around it.

AppendixLO1