Econometric question not tricky for a pro: The following model was estimated usi

Question

Econometric question not tricky for a pro:

The following model was estimated using quarterly seasonally unadjusted data for the UK from the first quarter of 1958 to the last quarter of 1978 Ct refers to real expenditures on goods and services; Yt refers to disposable income; Pt is the price deflator for consumption and; Delta 1 log(Ct) = log(Ct) - log(Ct - 1). Suppose the long - run rate of inflation Delta 1 log(Pt) = 0.1, the long - run growth in consumptions Delta 1log(Ct) = 0.25 and the long - run growth in income is Delta 1log(yt - 1) = 0.25. Standard errors of the estimates are located in parentheses under the estimates. What is the long - run relationship between Ct and Yt? C = 0.1 + 0.9Y; C = 0.9Y; C = 0.8Y; C = 0.2 + 0.8Y;

Explanation / Answer

3. (d) C = 0.2 + 0.8Y

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