Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 5

In Section 5.1 of this chapter we stated that changes in potential GDP do not depend on the price level, or in other words, "potential GDP is exogenous with respect to the price level." The goal of this exercise is to give you a chance to convince yourself that this is the case.
a. Go to http://research.stlouisfed.org/fred2 and download annual data for the period 1949-2012 for the following two variables: Real Potential Gross Domestic Product (potential RGDP) and Gross Domestic Product Implicit Price Deflator. (Both sets of data are located under the Category "National Accounts." For RGDP, go to "GDP/GNP" and for the price deflator, go to "Price Indexes and Deflators.") Copy the data into an EXCEL spreadsheet. You will need to take the average of the four quarters of each year to get the annual average. ( Hint: Use the average command in Excel.)
b. Calculate the annual growth rate in potential RGDP and the annual inflation rate in GDP deflator. Create a scatterplot that has the growth rate of potential GDP on the Y axis and the annual inflation rate in the GDP deflator on the X axis. Can you visually identify any relationship between the two variables *
c. If you have taken a statistics class, use EXCEL or a statistical program in order to run the following regression:

What do you find Is the coefficient on the inflation rate statistically significant Interpret your results.