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Assignment 1

The assignment instructions are: - The assignment is due on Friday, March 21st at midnight and must be submitted as a zipped file containing interpretations in a notepad or word file and commands in a rats file. - Students can contact the instructor with any queries. - There will be no extensions and zero tolerance for plagiarism.

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16 views3 pages

Assignment 1

The assignment instructions are: - The assignment is due on Friday, March 21st at midnight and must be submitted as a zipped file containing interpretations in a notepad or word file and commands in a rats file. - Students can contact the instructor with any queries. - There will be no extensions and zero tolerance for plagiarism.

Uploaded by

smaheen303
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 1 (ECON 334)

Instructions
The assignment is due on Friday (21st March 2021) midnight.
A tab has been generated on LMS. You need to submit the assignment in zipped file format. It
should contain the interpretations (notepad file/word file) and the commands file (rats).
For any queries feel free to contact Instructor.
NOTE: There will be no extension for assignment. You have to submit it on a given time. There
will zero tolerance policy for plagiarizing the assignment.

1- Given the sugarcane supply response problem, using bangla.xls (34 annual observations),
estimate the following model with no lags
2- Consider the distributed lag model for okun’s law (okun.xls, quarterly data starting 1985 Ist quarter)

3- In this question we investigate the effect of wage changes on the inflation rate. Such effects can be
from the demand side or the supply side. On the supply side, we expect wage increases to increase costs
of production and to drive up prices. On the demand side, wage increases mean greater disposable
income, and a greater demand for goods and services that also pushes up prices. Irrespective of the line of
reasoning, the relationship between wage changes and inflation is likely to be a dynamic one; it takes time
for wage changes to impact on inflation. To investigate this dynamic relationship, we use quarterly data
on U.S. inflation (INF) and wage growth (WGWTH) from 1970Q2 to 2010Q1. These data can be found
in the file infln_wage.dat
a) Graph the time series for INF and WGWTH. Include a horizontal line at the mean of each series.
Do the series appear to fluctuate around a constant mean?
b) Estimate the model:
INF t=α +α 0 WGWTH t + ε t
Interpret the estimate for α 0. Check for serially correlated errors using the residual correlogram,
and an LM test with two lagged errors. What do you conclude?

c) Estimate the model:


INF t=α +α 0 WGWTH t + γ 0 INFt −1+ ε t
Did inclusion of INF t−1 in the model eliminate serial correlation in the errors? Report any
significant residual autocorrelations from the above equation and the results from LM tests with
two.
d) Add first INF t−2, and then INF t−3, to the model in part (c). In each case report the results of
correlogram and LM checks for serially correlated errors.
e) Omit INF t−2 from the second model estimated in part (d), and estimate the resulting model:
INF t=α +α 0 WGWTH t + γ 0 INFt −1+ γ 1 INFt −3 +ε t

Why might you consider dropping INF t−2? Did its omission lead to a fall in the AIC and SC
(HINT: Use correlogram)? Try adding WGWTH t −1. Does its inclusion improve the equation?

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