Read the following article:

Lansing, Kevin J. Improving the Phillips Curve with an Interaction Variable, FRBSF Economic Letter, May

6, 2019.

https://www.frbsf.org/economic-research/files/el2019-13.pdf

Answer the following questions:

1. Describe the regression the author implemented to derive Figure 1. What conclusions does the

author derive from figure 1?

2. How does the author explain the conclusions he derives from figure 1?

3. To generate the results of figure 2, the author creates an "inflation-output gap" interaction

variable. What is this variable and what is the economic intuition behind this variable?

4. What does the author conclude about the forecasting abilities of his different models?