Week 10 Homework Question (8 Marks) The file unemployment.wf1 has data on the unemployment rate across 234 Australian regional areas. Also included are data on the average income level, the average education level, and three indices that measure the size of the manufacturing sector, the trade sector and the professional sector (ms, ts and ps respectively). Produce an econometric model for unemployment and write a page or two interpreting your model and explaining why you settled on your chosen specification. Be sure to highlight the strengths and weaknesses of your model. Also include an Eviews output of your final model and of other related outputs that helped you make your decisions. You may like to (i) use alternative functional forms and (ii) include different transformations of the same variable in your chosen regression. You should also consider at least some of the following: (1) The quality of the fit (2) The significance of the coefficients (3) The economic rationale for your model (4) Whether the specification of your model is appropriate for the data (4) The parsimony of your model (i.e. there is a slight preference for simple models over complex ones) (5) Whether the standard errors are correct (6) The extent to which multicolinearity affects your model Note that there is no ‘correct’ answer and that a great many specifications will perform well. Furthermore a perfect model is usually very difficult to achieve and is not required to get full marks for the question. You will be marked on both the model and the explanation you provide with an emphasis on the explanation.