Econometrics 1



Econometrics I

Answer (A)

Keeping ChCPI as the dependent variable, the increase in the percentage utilization of manufacturing capacity in current year increases the manufacturing and therefore increases the aggregate demand in the society. The increasing demand will therefore increases the ChCPI. The increasing money supply (M1) increases the aggregate demand which can increase the CPI. The increase in the inflation increases the CPI which has a direct effect on the unemployment levels. The time deposit changes in the variables are certainly an impacting variable which must have a positive sign in the analysis.

Answer (B)

Comments

The graphs above shows that the values are highly deviating from each other and therefore the fitted plots or lines are not accurate at all. This can also be determined through R - square which is extremely in all the graphs. In the first relation between CapUtil and ChCPI shows that the correlation is 0.0023 which is extremely low showing almost no relationship at all. The similar case is with the other variables that have low R - squares and having very week relationship almost close to no relationship.

Answer (C)

Dependent Variable: CHCPI

Included observations: 47

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

3.152095

1.581008

1.993724

0.0523

UNEMP

0.196046

0.251328

0.780041

0.4395

R-squared

0.013341

F-statistic

0.608464

Adjusted R-squared

-0.008585

Prob(F-statistic)

0.439450

Durbin-Watson stat

0.468242

    Durbin-Watson stat

0.468242

The above results show that the overall model is insignificant because the f - value is way too low to be significant and also the P<0.05. Also the coefficients of the regression equation is also insignificant having P>0.05 and lesser t - values. The R - square of the model is also close to negligible i.e. showing only 1% relationship between both the variables. The value of the Durbin - Watson is 0.46 showing positive autocorrelation problems in the analysis.

There is a problem of causality which has been explained above that the dependent variable in the model is mis-specified. Though ignoring that mis - specification our hypothetical signs are correct because the increasing unemployment can cause the inflation to rise therefore a positive (+) sign was expected. The hypothetical predictions of the results though came correct but the overall model is certainly mis - specified.

Answer (D)

Dependent Variable: CHCPI

Included observations: 47

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

-22.42361

9.986353

-2.245425

0.0301

CAPUTIL

0.258128

0.105339

2.450456

0.0185

CHM1

-0.076465

0.096334

-0.793749

0.4318

CHM2

0.273057

0.129643

2.106226

0.0412

UNEMP

0.774310

0.358919

2.157341

0.0367

R-squared

0.201739

    Mean dependent var

4.342553

Adjusted R-squared

0.125714

    S.D. dependent var

2.818398

F-statistic

2.653595

    Durbin-Watson stat

0.720878

Prob(F-statistic)

0.046141

Due to the problem of causality explained above, the overall model is again found out to be insignificant because of very less f - value and P>0.05. The coefficients other than CapUtil are all insignificant with P>0.05. The signs are not all came out to be correct as was ...