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Gretl Empirical Exercise 2
Gretl Empirical Exercise 2
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What is your expectation about the sign of
(coefficient of determination) is equal to 0.6658 meaning that around 67% of the variation in real
per capita gasoline expenditures is explained by the gasoline price index.
Have we just proven that the law of demand does not hold for gasoline? Not so fast. First of all,
while this result is statistically significant; is it economically significant? Obviously, there are
many other things that may be impacting the demand for gasoline besides its own price. So we
will estimate this model in a multiple regression context and estimate different demand
elasticities on Homework 3; but for now, lets just run a few more two-variable regressions to
develop our intuition about some of these expected relationships.
NOTE that the price variables included in this data set are price indices, NOT the actual prices of
the various commodities over time! In other words, the price variables are NOT measured in
dollars. Since they are indices, they have no units; but they do tell us how prices are changing
over time.
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EXERCISES:
1. Setup a two-variable regression model (i.e. write down the PRF) to examine the impact of per
capita disposable income on real per capita gasoline expenditures.
a. Based off your know knowledge of microeconomic theory, what are your expectations
about the sign of
? Why?
b. Estimate the model. Display your regression results.
c. Is
.
2. Setup a two-variable regression model (i.e. write down the PRF) to examine the impact of the
price of public transportation on real per capita gasoline expenditures.
a. Based off your knowledge of microeconomic theory, what are your expectations about
the sign of
? Why?
b. Estimate the model. Display your regression results.
c. Is