In your role as a data analyst with a financial consultant, you are provided monthly interest rates (Commmonwealth government…

In your role as a data analyst with a financial consultant, you are provided monthly interest rates (Commmonwealth government…

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In your role as a data analyst with a financial consultant, you are provided monthly interest rates (Commmonwealth government bonds with 2 years, 5 years and 10 years maturities) for the period January 1995-June 2020 (T-306). The three series are plotted in Figure 1.
Figure 1: Monthly Commonwealth Bond Yields from January 1995 to June 2020
4²,-0.019 -0.627 × A=
0.627 x A-0.038 x4²+
1-1 (0.506)
1-1
(-1.45) (-9.58)
Ay=0.028- 0.100 x 1.340 xx+0.400xz
(1.29) (-5.69)
(-23.1)
(11.6)
1-1

+1.515xx, – 1.381 xx
(-29.2)
(42.6)
+1₁
0.620 x2 +0.580x+₁
(16.7)
(-18.1)
7-1
1-1
1-1
y 0.028+0.900xy
(1.29) (39.8)
Please use the above results only to answer the following questions.
What inference can be drawn on the order of integration for the stochastic process (z;)?
2
Let ydenote the 10 year bond series, x, the 5 year bond series, and z, the 2 year bond series. You use statistical software to estimate the following equations (f-statistics in parentheses)
A: -0.033-0.012 x,-1+0.347x Az
1-1
(1.07) (-1.86)
(6.54)
0
0
100
TB10YR
TB2YR
t
200
TB5YR
300

Expert Answer:

Answer rating: 100% (QA)

SOLUTION To infer the order of integration for the stochastic process described by equation 7 we need to examine the coefficients of the differenced v
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