The file P16_24.XLS lists the monthly unemployment rates for the last 10 years. A common way to forecast time series is by using regression with lagged variables.

a. Predict future monthly unemployment rates using some combination of the unemployment rates for the last 4 months. For example, you might use last month’s unemployment rate and the unemployment rate from 3 months ago as explanatory variables. Make sure all variables that you finally decide to keep in your equation are significant at the 0.15 level.

b. Do the residuals in your equation exhibit any autocorrelation?

c. Predict the December 1997 unemployment rate.

d. There is a 5% chance that the December 1997 unemployment rate will be less than what value? e What is the probability the December 1997 unemployment rate will be less than 5%?

e. What is the probability the December 1997 unemployment rate will be less than 5%?