True or false? Many thanks We have quarterly data on the three-month government

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True or false? Many thanks

We have quarterly data on the three-month government bond rate (i3) and the quarterly inflation rate (inf) from Sweden between 1952 and 2014. The variable t indicates time. You consider estimating the following model i3_t = beta_0 + beta_1 i3_t-1 + beta_2inf_t + beta_3inf_t-1 + beta_4inf_t-2 + Ut 3. Suppose that both i3 and inf are highly persistent variables. We have to include t as an additional explanatory variable in the above model to take care of the problem caused by the highly persistent variables. 4. If there is serial correlation in the error term, then the OLS estimator of beta_2 is inconsistent.

Explanation / Answer

3.) False

4.) True

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