You have been hired by the French government to produce a time series model explaining the role of German economic performance in determining French output growth. Quarterly data on real GDP growth (in %) for France and Germany since 1993Q1 are available in the data file GDP.wf1. Use the data to estimate an ARDL(P,Q) model for growth in France.
- Select the appropriate lag structures to ensure that your model (i) has desirable goodness of fit properties, and (ii) is free of autocorrelation. Give your estimated equation and provide appropriate supporting outputs to demonstrate the quality of your model.
- Write a paragraph explaining on how you settled on your specification in the previous question. Why is it better than other possible specifications?
- Write a couple of paragraphs explaining the dynamics of output growth in France and Germany as estimated by your model. How important does economic growth in Germany appear to be for France?
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