Question

A researcher is investigating the relationships between house prices in UK regions. They have quarterly data on the log of the index of house prices from 1973 Q3 to 2021 Q1 for two adjacent UK regions – the North East (LN_NE) and Yorkshire and Humberside (LN_YH).

The researcher has produced the output, shown in FIGURES 1.1, 1.2, and 1.3 below. The researcher is unsure as to whether the regression model presented in Figure 1.2 represents a spurious regression or whether it has some more meaningful interpretation. Advise the researcher on how to interpret the regression in Figure 1.2, explaining how you arrive at your conclusions from the available evidence shown in Figures 1.1, 1.2, and 1.3. Explain how this result has some degree of ‘economic rationale’.
The researcher has also produced the output shown in Figure 1.4. Explain and interpret the output shown in Figure 1.4.