2. Suppose we have data on money variable (m,) expressed in Bds $ and consumer price index (p,) for Barbados for the period 1995.01 - 1998.12. We derive Money Growth as Dm, = (m, - m)/ m,_ and Inflation as Dp, (p, - P) P a) The regression of Inflation on Money Growth may or may not be valid. Explain the statement thoroughly. 10 marks b) Suppose we fit three models for Inflation: ARMA, Regression Model and VAR Model for the period 1995.02 1997.12. Results of model estimations and summary statistics of ex-post forecasts for the period 1998.01 1998.12 are presented below: ARMA Model: Table 1: Inflation as an MA(9) Process Variable C MA(9) R-squared Coefficient Std. Error 0.002495 0.001409 -0.941359 0.446404 Adjusted R-squared 0.429628 S.E. of regression 0.010942 t-Statistic Prob. 1.771103 0.085800 0.043129 -21.82681 0.000000 Mean dependent var 0.002636 S.D. dependent var 0.014489 Akaike info criterion -6.136890 Sum squared resid 0.003951 Log likelihood 109.3956 F-statistic Durbin-Watson stat 2.119110 Schwarz criterion Prob(F-statistic) -6.048013 26.61026 0.000012