This project will utilize quarterly time series data going from the first quarter in 1972 through

the
fourth quarter of 2019.

You will not need to submit your Excel files, but you will need to upload a typed paper answering the
questions posed below in any form you wish. Be as complete as possible and provide any quantitative
material requested and in a manner that is as clear as possible.

1. Let the mortgage rate be the dependent variable and use the unemployment rate,
unemployment duration, real GDP, housing starts, and the CPI as explanatory
variables. Conduct a multiple regression estimation and discuss your results. Is this a
good model? What do the coefficients on the explanatory variables mean and which
explanatory variables are important in explaining mortgage rates? Use any level of
significance you believe is appropriate in your discussion. What is the multiple
regression equation and the goodness of fit measure?

2. From your work in question 1, eliminate all the explanatory variables that are not
statistically important. What is the equation of your new regression model? Discuss
the coefficients and the goodness of fit for the new model.

3. Suppose we consider just a simple regression model with the federal funds rate as the
dependent variable and housing starts as the only explanatory variable. In addition to
housing starts, consider the non-linear transformations of the natural log, the square,
the square root, and the reciprocal of housing starts. What would your best simple
regression equation in linking the federal funds rate and housing starts (using the best
functional form)? Is this a good model? Explain.

4. Consider simple trend and quadratic models with non-farm employment as the
dependent variable and trend as the explanatory variable. Using these models, provide
a forecast of non-farm employment for each quarter of 2020. Which model should
provide the best forecast? Explain.