APLLIED ECONOMETRICS-CIA 1

NIKITHA M

1837044

3 MAECO

OUTPUTS AND INTERPRETATION

1. Output with intercept

Dependent Variable: CONSUMPTION

Method: Least Squares
Date: 07/15/19 Time: 15:13
Sample: 1960 2013
Included observations: 54

Variable Coefficient Std. Error t-Statistic Prob.  

C 17952.88 5643.181 3.181341 0.0025

INCOME 0.848593 0.040472 20.96714 0.0000
WEALTH 0.030018 0.003132 9.583698 0.0000
INTEREST -3.752120 2.924669 -1.282921 0.2056
YEAR -9.185977 2.886001 -3.182943 0.0025

R-squared 0.999448    Mean dependent var 2888.356

Adjusted R-squared 0.999403    S.D. dependent var 1500.903
S.E. of regression 36.68431    Akaike info criterion 10.13060
Sum squared resid 65941.18    Schwarz criterion 10.31476
Log likelihood -268.5261    Hannan-Quinn criter. 10.20162
F-statistic 22167.68    Durbin-Watson stat 1.219760
Prob(F-statistic) 0.000000

p<0.05 for income, wealth and year. Therefore in this model wealth, income and year are the
determinants of consumption.

Consumption=17952.88+0.848593(income)+0.030018(wealth)-3.752120(interest)

When income increases by 1 unit consumption increases by 0.848593 units whereas when
wealth increases by 1 unit consumption increases by 0.030018 units. When interest rate
increases by 1 unit consumption decreases by 3.752120 units.

output without intercept

Dependent Variable: CONSUMPTION

Method: Least Squares
Date: 07/15/19 Time: 15:15
Sample: 1960 2013
Included observations: 54

Variable Coefficient Std. Error t-Statistic Prob.  

INCOME 0.726714 0.014192 51.20750 0.0000

 WEALTH 0.036403 0.002615 13.92181 0.0000
INTEREST -0.513392 2.981372 -0.172200 0.8640
YEAR -0.004645 0.006806 -0.682453 0.4981

R-squared 0.999334    Mean dependent var 2888.356

Adjusted R-squared 0.999294    S.D. dependent var 1500.903
S.E. of regression 39.89018    Akaike info criterion 10.28132
Sum squared resid 79561.31    Schwarz criterion 10.42866
Log likelihood -273.5958    Hannan-Quinn criter. 10.33814
Durbin-Watson stat 1.094121

p<0.05 for income and wealth. Therefore in this model we can say that wealth and income are
the determinant of consumption.

Consumption=0.726714(income)+0.036403(wealth)-0.513392(interest)

When income increases by 1 unit consumption increases by 0.726714 units whereas when
wealth increases by 1 unit consumption increases by 0.036403 units. When interest rate
increases by 1 unit consumption decreases by 0.513392 units.

2. Heteroscedasticity test
H0: There is no heteroscedasticity
H1: There is heteroscedasticity

Heteroskedasticity Test: White

F-statistic 13.83088    Prob. F(13,40) 0.0000

Obs*R-squared 44.17295    Prob. Chi-Square(13) 0.0000
Scaled explained SS 64.93171    Prob. Chi-Square(13) 0.0000

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 07/15/19 Time: 15:25
Sample: 1960 2013
Included observations: 54
Collinear test regressors dropped from specification

Variable Coefficient Std. Error t-Statistic Prob.  

C -1616069. 547580.9 -2.951289 0.0053

INCOME -4739.318 1307.258 -3.625390 0.0008
INCOME^2 -0.025675 0.006459 -3.974739 0.0003
INCOME*WEALTH 0.007019 0.001379 5.090445 0.0000
INCOME*INTEREST 0.422258 1.645154 0.256668 0.7988
INCOME*YEAR 2.415025 0.666786 3.621890 0.0008
WEALTH 1091.702 242.0730 4.509806 0.0001
WEALTH^2 -0.000208 5.15E-05 -4.046635 0.0002
WEALTH*INTEREST -0.058661 0.170806 -0.343436 0.7331
WEALTH*YEAR -0.557748 0.123333 -4.522294 0.0001
INTEREST 53980.45 198799.0 0.271533 0.7874
INTEREST^2 -1.090193 49.88971 -0.021852 0.9827
INTEREST*YEAR -27.51382 101.7690 -0.270356 0.7883
YEAR 828.8799 280.9959 2.949793 0.0053
R-squared 0.818018    Mean dependent var 1221.133
Adjusted R-squared 0.758873    S.D. dependent var 2329.082
S.E. of regression 1143.688    Akaike info criterion 17.14032
Sum squared resid 52320879    Schwarz criterion 17.65598
Log likelihood -448.7886    Hannan-Quinn criter. 17.33919
F-statistic 13.83088    Durbin-Watson stat 2.541924
Prob(F-statistic) 0.000000

Since p<0.05 we reject null hypothesis. There is heteroscedasticity.

Correction for heteroscedasticity using white’s test

Heteroskedasticity Test: White

F-statistic 13.83088    Prob. F(13,40) 0.0000 Even after correction

Obs*R-squared 44.17295    Prob. Chi-Square(13) 0.0000
Scaled explained SS 64.93171    Prob. Chi-Square(13) 0.0000
p<0.05. Therefore we
reject null hypothesis
and say there exists
Test Equation:
Dependent Variable: RESID^2 heteroscedasticity.
Method: Least Squares
Date: 07/15/19 Time: 15:29 3. Autocorrelation
Sample: 1960 2013
Included observations: 54
H0: There is no
Collinear test regressors dropped from specification Autocorrelation
H1: There is
Variable Coefficient Std. Error t-Statistic Prob.  
Autocorrelation
C -1616069. 547580.9 -2.951289 0.0053
INCOME -4739.319 1307.258 -3.625390 0.0008
INCOME^2 -0.025675 0.006459 -3.974740 0.0003
INCOME*WEALTH 0.007019 0.001379 5.090446 0.0000
INCOME*YEAR
Dependent 2.415026
Variable: CONSUMPTION 0.666786 3.621891 0.0008
INCOME*INTEREST
Method: Least Squares 0.422259 1.645154 0.256668 0.7988
WEALTH
Date: 07/15/19 Time: 15:32 1091.702 242.0730 4.509806 0.0001
Sample: WEALTH^2
1960 2013 -0.000208 5.15E-05 -4.046635 0.0002
WEALTH*YEAR
Included observations: 54 -0.557748 0.123333 -4.522295 0.0001
WEALTH*INTEREST -0.058661 0.170806 -0.343436 0.7331
YEAR
Variable 828.8798
Coefficient 280.9959
Std. Error 2.949793
t-Statistic 0.0053
Prob.  
YEAR*INTEREST -27.51386 101.7690 -0.270356 0.7883
INTEREST
C 53980.52
17952.88 198799.0
5643.181 0.271533
3.181341 0.7874
0.0025
INTEREST^2
INCOME -1.090207
0.848593 49.88971
0.040472 -0.021852
20.96714 0.9827
0.0000
WEALTH 0.030018 0.003132 9.583698 0.0000
R-squared INTEREST 0.818018    Mean
-3.752120 dependent var
2.924669 -1.282921 1221.133
0.2056
Adjusted R-squared
YEAR 0.758873    S.D.2.886001
-9.185977 dependent var -3.182943 2329.082
0.0025
S.E. of regression 1143.688    Akaike info criterion 17.14032
Sum squared resid
R-squared 52320879    Schwarz criterion var
0.999448    Mean dependent 17.65598
2888.356
Log likelihood
Adjusted R-squared -448.7886    Hannan-Quinn
0.999403    S.D. dependentcriter.
var 17.33919
1500.903
F-statistic
S.E. of regression 13.83088    Durbin-Watson stat
36.68431    Akaike info criterion 2.541924
10.13060
Prob(F-statistic) 0.000000
Sum squared resid 65941.18    Schwarz criterion 10.31476
Log likelihood -268.5261    Hannan-Quinn criter. 10.20162
F-statistic 22167.68    Durbin-Watson stat 1.219760
Prob(F-statistic) 0.000000

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 8.207505    Prob. F(2,47) 0.0009

Obs*R-squared 13.97793    Prob. Chi-Square(2) 0.0009

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 07/15/19 Time: 15:33
Sample: 1960 2013
Included observations: 54
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.  

C -1922.306 5028.261 -0.382300 0.7040

INCOME -0.023483 0.036403 -0.645074 0.5220
WEALTH 0.002829 0.002854 0.991273 0.3266
INTEREST -0.054372 2.571554 -0.021144 0.9832
YEAR 0.984070 2.571614 0.382666 0.7037
RESID(-1) 0.606339 0.162479 3.731790 0.0005
RESID(-2) -0.518530 0.165458 -3.133915 0.0030

R-squared 0.258851    Mean dependent var 4.31E-12

Adjusted R-squared 0.164236    S.D. dependent var 35.27284
S.E. of regression 32.24648    Akaike info criterion 9.905118
Sum squared resid 48872.27    Schwarz criterion 10.16295
Log likelihood -260.4382    Hannan-Quinn criter. 10.00455
F-statistic 2.735835    Durbin-Watson stat 2.018806
Prob(F-statistic) 0.023117

Dw statistic value is 1.2197 indicating the presence of positive autocorrelation. Same can be
established by serial correlation or Lm test. In Lm test p<0.05, therefore we reject the null
hypothesis of no autocorrelation. Therefore it is possible to arrive at conclusion with DW
statistic.

4. Mutlicollinearity

As we can see from the table below the centered VIF values are greater for income,
wealth and year i.e VIF>10. Therefore there is severe multicollinearity problem.

Variance Inflation Factors

Date: 07/15/19 Time: 15:37
Sample: 1960 2013
Included observations: 54

Coefficient Uncentered Centered

 Variable Variance VIF VIF

C  31845496  1277854.  NA

INCOME  0.001638  851.6248  172.0322
WEALTH  9.81E-06  123.9242  30.09394
INTEREST  8.553689  3.042065  1.211431
YEAR  8.329001  1318955.  81.18641

5. Unit root test (Adf test)

H0: There is unit root

Level 1st diff 2nd diff

variable I I and t none I I and t none I I and t none

s
Income
 0.2900  0.9265  0.9265  0.0000
 0.0000  0.0000
   0.1821  0.0000
 0.0000

interest
 0.0006  0.0002  0.0000  0.0000  0.0000  0.0003  0.0018
 0.0001  0.0000

wealth
 0.9848  1.0000  0.0000  0.0000  0.0002  0.0000  0.0000  0.0000
 0.6697