Use the data in OKUNUK.XLS and statistical software to run the following regression:

where GDPGAP = real GDP growth minus potential GDP growth in the UK CHGUN = change in the unemployment rate in the UK (A) According to a test of significance, does ˆ
0 belong in the regression?
(B) According to economic reasoning, does ˆ
0 belong in the regression?
(C) Re-run the regression excluding ˆ
0. Does ˆ
1 change much from the prior regression?
(D) Which regression of the two fits best? On what do you base your response?

Transcribed Image Text:

GDPGAP+,CHGUN, e