1. Consider the stationary and non-stationary models of non-residential investment Model 1A In(NRI) = 1.118 0.001r+ +0.810ln(FX4) (0.100) (0.008) (0.060) N= 80 R2 = 0.98 3 = 1.223 Aut = -0.762Ut-1 (0.011) Model 1B A%NR14 = 0.958 0.258Art-1 +0.6614%FX4-1 +0.580A%N RIt-1 (0.900) (0.110) (0.237) (0.010) N= 80 R2 = 0.38 = 0.125 Model 10 t A%NRI4 = 0.911 -0.518Art-1+0.226A%FXt-1+0.591A%NRIt-1-0.889ut-1 = (0.880) (0.090) (0.133) (0.012) (0.006) N= 80 R2 = 0.42 3 = 0.083 where NRI is the amount of non-residential investment in Canada, rt is the 30- day treasury bill rates, FX is the exchange rate for Canadian dollar aganist U.S. dollar, and ut is the residual from Model 1A. The numbers in the parentheses are standard errors. (b) (5 marks) What are the short run and long run effects of interest rate on non-residential investment? Show steps! 1. Consider the stationary and non-stationary models of non-residential investment Model 1A In(NRI) = 1.118 0.001r+ +0.810ln(FX4) (0.100) (0.008) (0.060) N= 80 R2 = 0.98 3 = 1.223 Aut = -0.762Ut-1 (0.011) Model 1B A%NR14 = 0.958 0.258Art-1 +0.6614%FX4-1 +0.580A%N RIt-1 (0.900) (0.110) (0.237) (0.010) N= 80 R2 = 0.38 = 0.125 Model 10 t A%NRI4 = 0.911 -0.518Art-1+0.226A%FXt-1+0.591A%NRIt-1-0.889ut-1 = (0.880) (0.090) (0.133) (0.012) (0.006) N= 80 R2 = 0.42 3 = 0.083 where NRI is the amount of non-residential investment in Canada, rt is the 30- day treasury bill rates, FX is the exchange rate for Canadian dollar aganist U.S. dollar, and ut is the residual from Model 1A. The numbers in the parentheses are standard errors. (b) (5 marks) What are the short run and long run effects of interest rate on non-residential investment? Show steps