Consider the following equation for U.S. per capita consumption of beef:

Where:

CB_t = the annual per capita pounds of beef consumed in the United States in year t

ln Y_t = the log of per capita disposable real income in the U.S. in year t

PB_t = average annualized real wholesale price of beef in year t (in cents per pound)

PRP_t = average annualized real wholesale price of pork in year t (in cents per pound)

D_t = a dummy variable equal to 1 for years in which there was a “health scare” about the dangers of red meat, 0 otherwise

a. Develop and test your own hypotheses with respect to the individual estimated slope coefficients.

b. Test for serial correlation in Equation 9.27 using the Durbin–Watson test at the 5-percent level.

c. What econometric problem(s) (if any) does Equation 9.27 appear to have? What remedy would you suggest?

d. You take your own advice and apply GLS to Equation 9.27, obtaining:

Compare Equations 9.27 and 9.28. Which do you prefer? Why?