Suppose the following model describes changes in the civilian unemployment rate: UER t = 0.0405 0.4674UERt

Question:

Suppose the following model describes changes in the civilian unemployment rate: ΔUER t = −0.0405 − 0.4674ΔUERt −1. The current change (first difference) in the unemployment rate is 0.0300. Assume that the mean-reverting level for changes in the unemployment rate is −0.0276.
A. What is the best prediction of the next change?
B. What is the prediction of the change following the next change?
C. Explain your answer to Part B in terms of equilibrium.