Use the data in CONSUMP.RAW for this exercise.
(i) In Example 16.7, use the method from Section 15.5 to test the single overidentifying restriction in estimating (16.35). What do you conclude?
(ii) Campbell and Mankiw (1990) use second lags of all variables as IVs because of potential data measurement problems and informational lags. Reestimate (16.35), using only gct-2, gyt-2> and r3t-2 as IVs. How do the estimates compare with those in (16.36)?
(iii) Regress gyt on the IVs from part (ii) and test whether gyt is sufficiently correlated with them. Why is this important?