To study the relationship between domestic and world prices, you are given the following models: 1. Yt = 1 + 2Xt + ut 2. Yt

To study the relationship between domestic and world prices, you are given the following models: 1. Yt = α1 + α2Xt + ut 2. Yt = β2Xt + ut where Y = GDP deflator for domestic goods and X = GDP deflator for importsa. How would you choose between the two models a priori? b. Fit both models to the data and decide which gives a better fit. c. What other model(s) might be appropriate for the data?