4. Exhibit 4 shows a plot of the first differences in the civilian unemployment rate (UER)

between January 2013 and August 2019, UERt ¼ UERt − UERt−1.

A. Has differencing the data made the new series, UERt, covariance stationary?
Explain your answer.
B. Given the graph of the change in the unemployment rate shown in the figure, describe the steps we should take to determine the appropriate autoregressive timeseries model specification for the series UERt.

Transcribed Image Text:

EXHIBIT 4 Change in Civilian Unemployment Rate 0.3 0.2 0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Jan/19