1.You decide to estimate an AR(1) model for the change in the unemployment rate:Yt=b0+b1Y(t1)+ut

using quarterly data from 1960:Q1 to 1999:Q4. The result is as follows:

Yt^=0.003+0.621Y(t1),R2=0.393,SER=0.255

(0.022)(0.106)

Let Y1999:Q4be 4.1.What is your forecast for the change in unemployment rate level in 2000:Q1(Y^(T+1)|T=Y^2000:Q1|1999:Q4)

?

(SHOW YOUR WORK! do you best to write the math clearly, e.g. b1hat.You can also use the formula button (x

) if you prefer.Either is fine and will be accepted. If you believe your math is unclear for any particular step, please include a brief sentence explaining what you did in that step.

Tips: the text editor provides an option for subscripts and superscripts, but we will also accept answers using underscores for subscripts or carats for superscripts, e.g.Ytis the same as Y_tandR2the same as R^2. You can also use != to mean not equals, <= to mean less than or equal to, and >= to mean greater than or equal to.)