4.c) Discuss what sort of tests one needs to perform to empirically assess the validity of the instruments used. [10 marks] Question 5. The following table shows the autocorrelation function between the current exchange rate USA/Euro measured in natural logarithm (Inex) and its lagged values. corrgram inex, lags (10) -1 LAG AC PAC Prob>Q [Autocorrelation] [Partial Autocor) 0. 9890 0.9919 491.97 0.0000 0.9732 -0.2701 969.34 0.0000 0. 9578 0.0934 1432.6 0.0000 0. 9424 -0.0599 1882 0.0000 0. 9268 -0.0213 2317.6 0.0000 0. 9112 -0.0078 2739.4 0.0000 0.8960 0.0483 3148.2 0.0000 0.8812 -0.0182 3544.3 0.0000 0. 8659 -0.0306 3927.6 0.0000 0.8503 -0.0625 4297.9 0.0000 5.a) Based on the autocorrelation function presented, do you conclude that the exchange rate series is stationary, if so explain why? [10 marks] 5.b) Below you can find the Augmented Dicky fuller test of the exchange rate series. Based on this test can you ascertain if the series is stationary? [10 marks] . dfuller Inex, trend Dickey-Fuller test for unit root Number of obs 499 -=="-" Interpolated Dickey-Fuller ------ Test 18 Critical 56 Critical 10% Critical Statistic Value Value Value 2(t -1.569 -3.980 -3.420 -3.130 Mackinnon approximate p-value for z(t) =0.8045