Consider the growth rates of the U.S. quarterly gross national product (GNP) from 1947.I to 2011.IV. The original data, from the Federal Reserve Bank of St Louis, are in the file q-gnp-4711.txt (year, month, day, gnp), and the GNP is in billions of dollars. The growth rate is the first differenced series of the log(GNP).
(a) Plot the GNP growth rates. The reduction in volatility, starting in the 1980s, is referred to as the great moderation in the economic literature.
(b) Build an AR(3) model for the growth rate series.
(c) Does the model confirm the existence of business cycles? Explain.
(d) Is the model you fitted a causal AR process?