In the regression model below, the dependent variable is the revenues each year (the t subscript is used as a general term for a year). The independent variables are the expenses for last year (t-1), expenses for the current year t, and the expenses for the following year (t+1). For example, if revenues are for 1995, the three expense variables are for 1994, 1995, and 1996. The coefficients in the regression measure the relationships between the dependent variable and independent variables. Revenuest = b0 + b1Expenset-1 + b2Expenset + b3Expenset+1 + e Below is the revenue and expense data for IBM in 1985-2014. 

All revenue and expense amounts are deflated by total assets at the end of the year. 

Revenues this year Expenses last year Expenses this year Expenses next year 

0.9510 0.7356 0.6797 0.6932 

0.8865 0.6797 0.6932 0.6743 

0.8513 0.6932 0.6743 0.6444 

0.8171 0.6743 0.6444 0.6324 

0.8067 0.6444 0.6324 0.6140 

0.7882 0.6324 0.6140 0.5980 

0.7007 0.6140 0.5980 0.5985 

0.7442 0.5980 0.5985 0.6982 

0.7732 0.5985 0.6982 0.6764 

0.7899 0.6982 0.6764 0.7232 

0.8960 0.6764 0.7232 0.7795 

0.9361 0.7232 0.7795 0.8024 

0.9633 0.7795 0.8024 0.7901 

0.9485 0.8024 0.7901 0.8151 

1.0006 0.7901 0.8151 0.8177 

1.0005 0.8151 0.8177 0.8195 

0.9723 0.8177 0.8195 0.7140 

0.8414 0.8195 0.7140 0.7139 

0.8533 0.7140 0.7139 0.7338 

0.8819 0.7139 0.7338 0.7020 

0.8618 0.7338 0.7020 0.7151 

0.8856 0.7020 0.7151 0.6578 

0.8203 0.7151 0.6578 0.7435 

0.9462 0.6578 0.7435 0.6700 

0.8783 0.7435 0.6700 0.6725 

0.8803 0.6700 0.6725 0.6970 

0.9183 0.6725 0.6970 0.6598 

0.8766 0.6970 0.6598 0.5996 

0.7903 0.6598 0.5996 0.5952

Required:

Estimate the above regression model using the data in the table above. Your answers should: 

a. Report the regression output with the coefficient estimates, t-statistics, and p-values. 

b. Explain why b2 is expected to be positive. State the alternative hypothesis for the coefficient estimate for b2 given the positive expectation. 

c. You should also explain the main reason for your hypothesis in part (b) in at least 50 words. 

d. State your conclusions for b1, b2, and b3 in at least 50 words.