From the quarterly data for the period 1950€“1960, F. P. R. Brechling obtained the following demand function for labor for the British economy (the figures in parentheses are standard errors):*

where EÌ‚_t = (E_t ˆ’ E_tˆ’1)

Q = output

t = time

The preceding equation was based on the assumption that the desired level of employment E^ˆ—_t is a function of output, time, and time squared and on the hypothesis that E_t ˆ’ E_tˆ’1 = δ(E^ˆ—_t ˆ’ E_tˆ’1), where δ, the coefficient of adjustment, lies between 0 and 1.

a. Interpret the preceding regression.

b. What is the value of δ?

c. Derive the long-run demand function for labor from the estimated short-run demand function.

d. How would you test for serial correlation in the preceding model?

Transcribed Image Text:

Ė, = 14.22 (2.61) (0.014) + 0.172Q, – 0.028t – 0.00072 – 0.297E,–1 (0.015) (0.0002) (0.033) R² = 0.76 d = 1.37