6. Assume that changes in the civilian unemployment rate are covariance stationary and that an AR(1) model

Question:

6. Assume that changes in the civilian unemployment rate are covariance stationary and that an AR(1) model is a good description for the time series of changes in the unemployment rate. Specifically, we have UERt ¼ −0.0668 − 0.2320UERt−1 (using the coefficient estimates given in the previous problem). Given this equation, what is the mean-reverting level to which changes in the unemployment rate converge?

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