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    Econometrics problem: Hourly Earnings and Unemployment Rate

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    Hourly Earnings and Unemployment Rate

    Complete Problem 5.29 of Chapter 5.

    5.29. Refer to Example 5.6 in the chapter. It was shown that the percentage change in the index of hourly earnings and the unemployment rate from 1958-1969 followed the traditional Phillips curve model. An updated version of the data, from 1965-2007, can be found in Table 5-19 on the textbook's Web site.

    a. Create a scattergram using the percentage change in hourly earnings as the Y variable and the unemployment rate as the X variable.
    Does the graph appear linear?
    b. Now create a scattergram as above, but use 1/X as the independent variable. Does this seem better than the graph in part (a)?
    c. Fit Eq. (5.29)(which is in the pages of text I have sent you on page 152) to the new data. Does this model seem to fit well? Also create a regular linear (LIV) model as in Eq. (5.30)( which is in the pages of text I have sent you on page 153). Which model is better? Why?

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