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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