The answers to the questions must be type-written. The preference is that symbols and equations should be inserted into the document using the equation editor in Word. Alternatively, they can be scanned and inserted as an image (providing it is clear and readable).

There are two questions, firstly on microeconometrics and secondly on macroeconometrics. ANSWER ALL QUESTIONS. The marks shown within each question indicate the weighting given to component sections. Any calculations must show all workings otherwise full marks will not be awarded.

2.You are working as an analyst for the UK Monetary Policy Committee. Using quarterly seasonally adjusted data from 1997q1 to 2020q4 your assistant has modelled the demand for money (MD) as a function of GDP (Y). They have provided you with tests of the time series properties of the data. There is also information provided on a forecast of the demand for money, where two alternative models are estimated over the period 2010q1 through to 2020q4: an ARIMA(1,0,1) and an ARIMA(2,0,1). Data are in natural logarithmic format.

Write a short detailed report for the Monetary Policy Committee based upon your assessment of the Stata output below, where ‘L’ denotes a lag operator and ‘D’ a difference operator. The report should be based upon a detailed discussion of the following areas: