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:

2

UrateUS t = -0.003 + 0.621 UrateUSt-1 , R = 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 R2

was 0.04. What does the difference in the results suggest here?

(d).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 arent 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?

(f).The actual unemployment rate during the fourth quarter of 1999 is 4.1 percent, and it decreased from the third quarter to the fourth quarter by 0.1 percent. What is your forecast for the unemployment rate level in the first quarter of 2000?

Changes in Unemployment Rates in the United States First Quarter 1999 to First Quarter 2000 U.S. Unemployment Change in Unemployment First Lag Quarter Rate Rate -0.1 1999:1 1999:11 1999:111 4.3 4.4 0.0 -0.1 1999:IV 2000:1 0.1 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 AUrate US1, R- 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? (d).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? (f).The actual unemployment rate during the fourth quarter of 1999 is 4.1 percent, and it decreased from the third quarter to the fourth quarter by 0.1 percent. What is your forecast for the unemployment rate level in the first quarter of 2000? 3 Fmnirical Evarai. Changes in Unemployment Rates in the United States First Quarter 1999 to First Quarter 2000 U.S. Unemployment Change in Unemployment First Lag Quarter Rate Rate -0.1 1999:1 1999:11 1999:111 4.3 4.4 0.0 -0.1 1999:IV 2000:1 0.1 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 AUrate US1, R- 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? (d).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? (f).The actual unemployment rate during the fourth quarter of 1999 is 4.1 percent, and it decreased from the third quarter to the fourth quarter by 0.1 percent. What is your forecast for the unemployment rate level in the first quarter of 2000? 3 Fmnirical Evarai