4. Consider the following regression: Yt = a + b1Xt + b2Xt-1 + ut a) Explain...

4. Consider the following regression:

Y_t = a + b₁X_t + b₂X_t-1 + u_t

a) Explain the difference between weak and strong dependency.

b) If dependency is weak, what can we do to address the issue of autocorrelation in this regression? What if dependency is strong?

c) Calculate the impact and long-term multipliers in this regression.

Expert Solution

Rahul Sunny answered 2 years ago

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