Econ 120C Chapter 14 - Time Series 1. You set out to forecast the unemployment rate in the United States (UrateUS), using quarterly data from 1960, first quarter, to 1999, fourth quarter. a. The following table presents the first four autocorrelations for the United States aggregate unemployment rate and its change for the time period 1960 (first quarter) to 1999 (fourth quarter). Explain briefly what these two autocorrelations measure. First Four Autocorrelations of the U.S. Unemployment Rate and its Change, 1960:1 - 1999 IV Lag Unemployment Rate Change of Unemployment Rate 0.97 0.62 0.92 0.32 A W N 0.83 0.12 0.75 -0.07 b. The accompanying table gives changes in the United States aggregate unemployment rate for the period 1999:1-2000:1 and levels of the current and lagged unemployment rates for 1999:I. Fill in the blanks for the missing unemployment rate levels. Changes in Unemployment Rates in the United States: 1st Quarter 1999 to 1st Quarter 2000 Quarter U.S. Unemployment First Lag Change in Rate Unemployment Rate 1999:1 4.3 4.4 -0.1 1999:II 0.0 1999:III -0.1 1999:IV -0.1 2000:1 -0.1 C. You decide to estimate an AR(1) in the change in the United States unemployment rate to forecast the aggregate unemployment rate. The result is as follows: AUrateUS = -0.003 + 0.621 A UrateUS , Rz = 0.393, SER = 0.255 (0.022) (0.106) The AR(1) coefficient for the change in the inflation rate was 0.211 and the regression R' was 0.04. What does the difference in the results suggest here The textbook used the change in the log of the price level to approximate the inflation rate, and then predicted the change in the inflation rate. Why aren't logarithms used here? e. If much of the forecast error arises as a result of future error terms dominating the error resulting from estimating the unknown coefficients, then what is your best guess of the RMSFE here