E16.2 On the text website, www.pearsonglobaleditions.com/Stock_Watson, you will find the data file USMacro_Quarterly, which contains quarterly data

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E16.2 On the text website, www.pearsonglobaleditions.com/Stock_Watson, you will find the data file USMacro_Quarterly, which contains quarterly data on real GDP, measured in $1996. Compute GDPGRt = 400 × [ln(GDPt) −

ln(GDPt−1)], the growth rate of GDP.

a. Using data on GDPGRt from 1960:1 to 2012:4, estimate an AR(2)

model with GARCH(1,1) errors.

b. Plot the residuals from the AR(2) model along with {sn t bands as in Figure 16.4.

c. Some macroeconomists have claimed that there was a sharp drop in the variability of the growth rate of GDP around 1983, which they call the “Great Moderation.” Is this Great Moderation evident in the plot that you formed in (b)?

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