ECONOMETRIC MODELS

Dr. PRADIP CHANDA

 DATA FOR AIRLINES
I T C Q PF LF I T C Q PF LF I T C Q PF LF
1 1 1140640 0.952757 106650 0.534487 2 1 569292 0.520635 103795 0.490851 3 1 286298 0.262424 118788 0.524334
1 2 1215690 0.986757 110307 0.532328 2 2 640614 0.534627 111477 0.473449 3 2 309290 0.266433 123798 0.537185
1 3 1309570 1.09198 110574 0.547736 2 3 777655 0.655192 118664 0.503013 3 3 342056 0.306043 122882 0.582119
1 4 1511530 1.17578 121974 0.540846 2 4 999294 0.791575 114797 0.512501 3 4 374595 0.325586 131274 0.579489
1 5 1676730 1.16017 196606 0.591167 2 5 1203970 0.842945 215322 0.566782 3 5 450037 0.345706 222037 0.606592
1 6 1823740 1.17376 265609 0.575417 2 6 1358100 0.852892 281704 0.558133 3 6 510412 0.367517 278721 0.60727
1 7 2022890 1.29051 263451 0.594495 2 7 1501350 0.922843 304818 0.558799 3 7 575347 0.409937 306564 0.582425
1 8 2314760 1.39067 316411 0.597409 2 8 1709270 1 348609 0.57207 3 8 669331 0.448023 356073 0.573972
1 9 2639160 1.61273 384110 0.638522 2 9 2025400 1.19845 374579 0.624763 3 9 783799 0.539595 378311 0.654256
1 10 3247620 1.82544 569251 0.676287 2 10 2548370 1.34067 544109 0.628706 3 10 913883 0.539382 555267 0.631055
1 11 3787750 1.54604 871636 0.605735 2 11 3137740 1.32624 853356 0.58915 3 11 1041520 0.467967 850322 0.56924
1 12 3867750 1.5279 997239 0.61436 2 12 3557700 1.24852 1003200 0.532612 3 12 1125800 0.450544 1015610 0.589682
1 13 3996020 1.6602 938002 0.633366 2 13 3717740 1.25432 941977 0.526652 3 13 1096070 0.468793 954508 0.587953
1 14 4282880 1.82231 859572 0.650117 2 14 3962370 1.37177 856533 0.540163 3 14 1198930 0.494397 886999 0.565388
1 15 4748320 1.93646 823411 0.625603 2 15 4209390 1.38974 821361 0.528775 3 15 1170470 0.493317 844079 0.577078

1ST AIRLINE 2ND AIRLINE 3RD AIRLINE

• I = Airline,
• T = Year,
• Q = Output, in revenue passenger miles, index number,
• C = Total cost, in $1000,
• PF = Fuel price,
• LF = Load factor, the average capacity utilization of the fleet.
 DATA FOR AIRLINES
I T C Q PF LF I T C Q PF LF I T C Q PF LF
4 1 145167 0.086393 114987 0.432066 5 1 91361 0.051028 118222 0.442875 6 1 68978 0.037682 117112 0.448539
4 2 170192 0.09674 120501 0.439669 5 2 95428 0.052646 116223 0.462473 6 2 74904 0.039784 119420 0.475889
4 3 247506 0.1415 121908 0.488932 5 3 98187 0.056348 115853 0.519118 6 3 83829 0.044331 116087 0.500562
4 4 309391 0.169715 127220 0.484181 5 4 115967 0.066953 129372 0.529331 6 4 98148 0.050245 122997 0.500344
4 5 354338 0.173805 209405 0.529925 5 5 138382 0.070308 243266 0.557797 6 5 118449 0.055046 194309 0.528897
4 6 373941 0.164272 263148 0.532723 5 6 156228 0.073961 277930 0.556181 6 6 133161 0.052462 307923 0.495361
4 7 420915 0.170906 316724 0.549067 5 7 183169 0.084946 317273 0.569327 6 7 145062 0.056977 323595 0.510342
4 8 474017 0.17784 363598 0.55714 5 8 210212 0.095474 358794 0.583465 6 8 170711 0.06149 363081 0.518296
4 9 532590 0.192248 389436 0.611377 5 9 274024 0.119814 397667 0.631818 6 9 199775 0.069027 386422 0.546723
4 10 676771 0.242469 547376 0.645319 5 10 356915 0.150046 566672 0.604723 6 10 276797 0.092749 564867 0.554276
4 11 880438 0.256505 850418 0.611734 5 11 432344 0.144014 848393 0.587921 6 11 381478 0.11264 874818 0.517766
4 12 1052020 0.249657 1011170 0.580884 5 12 524294 0.1693 1005740 0.616159 6 12 506969 0.154154 1013170 0.580049
4 13 1193680 0.273923 951934 0.572047 5 13 530924 0.172761 958231 0.605868 6 13 633388 0.186461 930477 0.556024
4 14 1303390 0.371131 881323 0.59457 5 14 581447 0.18667 872924 0.594688 6 14 804388 0.246847 851676 0.537791
4 15 1436970 0.421411 831374 0.585525 5 15 610257 0.213279 844622 0.635545 6 15 1009500 0.304013 819476 0.525775

4TH AIRLINE 5TH AIRLINE 6TH AIRLINE

• I = Airline,
• T = Year,
• Q = Output, in revenue passenger miles, index number,
• C = Total cost, in $1000,
• PF = Fuel price,
• LF = Load factor, the average capacity utilization of the fleet.
 TYPES OF DATA
• Three types of data: Time series, cross-section and pooled (combination of time
series and cross-section) data.
• Time series is a set of observation on the values that a variable takes at different
times. In the table data 15 years data of ‘C’, ‘Q’, ‘PF’, and ‘LF’ are time series data
• Cross-section data: When data on one or more variables collected at the same
point in time. In the table 6 airlines data for 15 years is cross-section data.
• Pooled data: Data are both time series and cross-sectional. Data in given table
consists of 15 years time series and 6 airlines cross-sectional observations
 TYPES OF DATA
• Panel, longitudinal data: These are special type of pooled data in which some
cross-sectional unit is surveyed over time. The given table refers to cost (C),
output (Q), Fuel price (PF) and Load Factor (LF) for the period of 15 consecutive
year. This is a classic example of panel data. If number of observations for each
company is same then it is called balanced panel otherwise unbalanced panel.

• Why panel data??

• Heterogenicity in the data
• Combining time series of cross-sectional observation gives ‘more informative’, ‘more
variability’, ‘less collinearity’, ‘more degree of freedom and efficiency’.
• Best suited to study dynamics of change
• Enable studying more complicated behavioural models.
 Panel data regression model
a) Pooled OLS model: Pooled all 90 observations and estimate a ‘grand’ regression
neglecting the cross-section and time series nature of data.
Model 𝐶𝑖𝑡 = 𝛽1 + 𝛽2 𝑄𝑖𝑡 + 𝛽3 𝑃𝐹𝑖𝑡 + 𝛽4 𝐿𝐹𝑖𝑡 + 𝑢𝑖𝑡 . i=1,2,3…6, t=1,2,3….15

Here regression co-efficient are same for all airlines. Regression co-efficient are
highly statistical significant. Major problem is that it does not distinguish between
the various airlines. It became a lumped analysis and camouflages the heterogenicity.
If the error is correlated with some of the regressor, the estimated coefficient may be
biased and inconsistence.
See the regression result and trend curve.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.972673339
R Square 0.946093423
Adjusted R
Square 0.944212962
Standard
Error 281559.4614
Observations 90

ANOVA
Significance
df SS MS F F
Regression 3 1.19655E+14 3.9885E+13 503.1176 2.0979E-54
Residual 86 6.81771E+12 7.9276E+10
Total 89 1.26473E+14

Standard Upper Lower Upper

Coefficients Error t Stat P-value Lower 95% 95% 95.0% 95.0%
Intercept 1158559.201 360592.7199 3.21293009 0.00185 441724.599 1875394 441724.6 1875394
Q 2026114.34 61806.94548 32.7813375 2.25E-50 1903246.2 2148982 1903246 2148982
PF 1.225347598 0.103721718 11.8137997 1.07E-19 1.01915565 1.43154 1.019156 1.43154
LF -3065753.131 696327.3183 -4.4027472 3.06E-05 -4450006.03 -1681500 -4450006 -1681500
THANK YOU