7 Let hy6: be the three-month holding yield from buying a six-month U.S. Treasury bill at time t-1 and selling it at time t as a three-month Treasury bill. Further, let hy3 be the three-month holding yield from buying a three-month Treasury bill at time -1. The expectation hypothesis implies that the slope coefficient in the regression of hy6, on hy3, should not be statistically different from one. (a) Assuming that there is evidence of a unit root in hy3, discuss prob- lems with standard OLS analysis of the above regression. (b) Rewrite the following model in the error correction form hy6: = 60 + 01hy6t-1 + 02hy3t + 0shy3:-1 + w. (3) What constraint on the parameters 61, ..., 63 is implied by the expec- tation hypothesis? (c) Assuming that the constraint holds, explain how you would estimate the error correction form of equation (3). How would you test for serial correlation in ut