DATASET 1 Table 1 gives data for real consumption expenditure, real income, real wealth, and real interest rates for country X for the years 1947-2000. TABLE 1: REAL CONSUMPTION EXPENDITURE, REAL INCOME, REAL WEALTH, AND REAL INTEREST RATES FOR COUNTRY X, 1947-2000 Year Consumption Expenditure (C) Income (Yd) Wealth (W) Interest Rate (R) 1947 976.4 1035.2 5166.8 -10.351 1948 998.1 1090.0 5280.8 -4.720 1949 1025.3 1095.6 5607.4 1.044 1950 1090.9 1192.7 5759.5 0.407 1951 1107.1 1227.0 6086.1 -5.283 1952 1142.4 1266.8 6243.9 -0.277 1953 1197.2 1327.5 6355.6 0.561 1954 1221.9 1344.0 6797.0 -0.138 1955 1310.4 1433.8 7172.2 0.262 1956 1348.8 1502.3 7375.2 -0.736 1957 1381.8 1539.5 7315.3 -0.261 1958 1393.0 1553.7 7870.0 -0.575 1959 1470.7 1623.8 8188.1 2.296 1960 1510.8 1664.8 8351.8 1.511 1961 1541.2 1720.0 8971.9 1.296 1962 1617.3 1803.5 9091.5 1.396 1963 1684.0 1871.5 9436.1 2.058 1964 1784.8 2006.9 10003.4 2.027 1965 1897.6 2131.0 10562.8 2.112 1966 2006.1 2244.6 10522.0 2.020 1967 2066.2 2340.5 11312.1 1.213 1968 2184.2 2448.2 12145.4 1.055 1969 2264.8 2524.3 11672.3 1.732 1970 2314.5 2630.0 11650.0 1.166 1971 2405.2 2745.3 12312.9 -0.712 1972 1550.5 2874.3 13499.9 -0.156 1973 2675.9 3072.3 13081.0 1.414 1974 2653.7 3051.9 11868.8 -1.043 1975 2710.9 3108.5 12634.4 -3.534 1976 2868.9 3243.5 13456.8 -0.657 1977 2992.1 3360.7 13786.3 -1.190 1978 3124.7 3527.5 14450.5 0.113 1979 3203.2 3628.6 15340.0 1.704 1980 3193.0 3658.0 15965.0 2.298 1981 3236.0 3741.1 15965.0 4.704 1982 3275.5 3791.7 16312.5 4.449 1983 3454.3 3906.9 16944.8 4.691 1984 3640.6 4207.6 17526.7 5.848 1985 3820.9 4347.8 19068.3 4.331 1986 3981.2 4486.6 20530.0 3.768 1987 4113.4 4582.5 21235.7 2.819 1988 4279.5 4784.1 22332.0 3.287 1989 4393.7 4906.5 23659.8 4.318 1990 4474.5 5014.2 23105.1 3.595 1991 4466.6 5033.0 24050.2 1.803 1992 4594.5 5189.3 24418.2 1.007 1993 4748.9 5261.3 25092.3 0.625 1994 4928.1 5397.2 25218.6 2.206 1995 5075.6 5539.1 27439.7 3.333 1996 5237.5 5677.7 29448.2 3.083 1997 5423.9 5854.5 32664.1 3.120 1998 5683.7 6168.6 35587.0 3.584 1999 5968.4 6320.0 39591.3 3.245 2000 6257.8 6539.2 38167.7 3.576 Based on the regression of consumption expenditure on real income, real wealth and real interest rate, find out which of the regression coefficients are individually statistically significant at the 5 percent level of significance. What is the fitted equation? What do the estimated coefficients indicate about the variables’ relationships to consumption expenditure? Are the signs of the estimated coefficients in accord with economic theory? Is there serial correlation in the model?
DATASET 1
Table 1 gives data for real consumption expenditure, real income, real wealth, and real interest rates
for country X for the years 1947-2000.
TABLE 1: REAL CONSUMPTION EXPENDITURE, REAL INCOME, REAL WEALTH, AND REAL INTEREST RATES FOR COUNTRY X, 1947-2000
Year |
Consumption Expenditure (C) |
Income (Yd) |
Wealth (W) |
Interest Rate (R) |
1947 |
976.4 |
1035.2 |
5166.8 |
-10.351 |
1948 |
998.1 |
1090.0 |
5280.8 |
-4.720 |
1949 |
1025.3 |
1095.6 |
5607.4 |
1.044 |
1950 |
1090.9 |
1192.7 |
5759.5 |
0.407 |
1951 |
1107.1 |
1227.0 |
6086.1 |
-5.283 |
1952 |
1142.4 |
1266.8 |
6243.9 |
-0.277 |
1953 |
1197.2 |
1327.5 |
6355.6 |
0.561 |
1954 |
1221.9 |
1344.0 |
6797.0 |
-0.138 |
1955 |
1310.4 |
1433.8 |
7172.2 |
0.262 |
1956 |
1348.8 |
1502.3 |
7375.2 |
-0.736 |
1957 |
1381.8 |
1539.5 |
7315.3 |
-0.261 |
1958 |
1393.0 |
1553.7 |
7870.0 |
-0.575 |
1959 |
1470.7 |
1623.8 |
8188.1 |
2.296 |
1960 |
1510.8 |
1664.8 |
8351.8 |
1.511 |
1961 |
1541.2 |
1720.0 |
8971.9 |
1.296 |
1962 |
1617.3 |
1803.5 |
9091.5 |
1.396 |
1963 |
1684.0 |
1871.5 |
9436.1 |
2.058 |
1964 |
1784.8 |
2006.9 |
10003.4 |
2.027 |
1965 |
1897.6 |
2131.0 |
10562.8 |
2.112 |
1966 |
2006.1 |
2244.6 |
10522.0 |
2.020 |
1967 |
2066.2 |
2340.5 |
11312.1 |
1.213 |
1968 |
2184.2 |
2448.2 |
12145.4 |
1.055 |
1969 |
2264.8 |
2524.3 |
11672.3 |
1.732 |
1970 |
2314.5 |
2630.0 |
11650.0 |
1.166 |
1971 |
2405.2 |
2745.3 |
12312.9 |
-0.712 |
1972 |
1550.5 |
2874.3 |
13499.9 |
-0.156 |
1973 |
2675.9 |
3072.3 |
13081.0 |
1.414 |
1974 |
2653.7 |
3051.9 |
11868.8 |
-1.043 |
1975 |
2710.9 |
3108.5 |
12634.4 |
-3.534 |
1976 |
2868.9 |
3243.5 |
13456.8 |
-0.657 |
1977 |
2992.1 |
3360.7 |
13786.3 |
-1.190 |
1978 |
3124.7 |
3527.5 |
14450.5 |
0.113 |
1979 |
3203.2 |
3628.6 |
15340.0 |
1.704 |
1980 |
3193.0 |
3658.0 |
15965.0 |
2.298 |
1981 |
3236.0 |
3741.1 |
15965.0 |
4.704 |
1982 |
3275.5 |
3791.7 |
16312.5 |
4.449 |
1983 |
3454.3 |
3906.9 |
16944.8 |
4.691 |
1984 |
3640.6 |
4207.6 |
17526.7 |
5.848 |
1985 |
3820.9 |
4347.8 |
19068.3 |
4.331 |
1986 |
3981.2 |
4486.6 |
20530.0 |
3.768 |
1987 |
4113.4 |
4582.5 |
21235.7 |
2.819 |
1988 |
4279.5 |
4784.1 |
22332.0 |
3.287 |
1989 |
4393.7 |
4906.5 |
23659.8 |
4.318 |
1990 |
4474.5 |
5014.2 |
23105.1 |
3.595 |
1991 |
4466.6 |
5033.0 |
24050.2 |
1.803 |
1992 |
4594.5 |
5189.3 |
24418.2 |
1.007 |
1993 |
4748.9 |
5261.3 |
25092.3 |
0.625 |
1994 |
4928.1 |
5397.2 |
25218.6 |
2.206 |
1995 |
5075.6 |
5539.1 |
27439.7 |
3.333 |
1996 |
5237.5 |
5677.7 |
29448.2 |
3.083 |
1997 |
5423.9 |
5854.5 |
32664.1 |
3.120 |
1998 |
5683.7 |
6168.6 |
35587.0 |
3.584 |
1999 |
5968.4 |
6320.0 |
39591.3 |
3.245 |
2000 |
6257.8 |
6539.2 |
38167.7 |
3.576 |
- Based on the regression of consumption expenditure on real income, real wealth and real interest rate, find out which of the regression coefficients are individually statistically significant at the 5 percent level of significance. What is the fitted equation?
- What do the estimated coefficients indicate about the variables’ relationships to consumption expenditure? Are the signs of the estimated coefficients in accord with economic theory?
- Is there serial correlation in the model?
- Suppose instead of the linear consumption function estimated in (a), you regress the logarithm of consumption expenditure on the logarithms of income and wealth and the interest rate. Show the regression results. How would you interpret the results?
- Between the regression models estimated in (a) and (c), which would you prefer? Why?
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