Reference no: EM13881414

In studying the farm demand for tractors, Griliches used the following model*:
T * _t = α X_1,t-1^β1 X_2,t-1 ^β2
where T* = desired stock of tractors

X1 = relative price of tractors

X2 = interest rate

Using the stock adjustment model, he obtained the following results for the period 1921-1957:

l---og Tt = constant - 0.218 log X1,t-1 - 0.855 log X2,t-1 + 0.864 log Tt-1
                                        (0.051)                  (0.170)             (0.035)
R² = 0.987

where the ?gures in the parentheses are the estimated standard errors.

a. What is the estimated coef?cient of adjustment?

b. What are the short- and long-run price elasticities?

c. What are the corresponding interest elasticities?

d. What are the reasons for high or low rate of adjustment in the present model?