Assignment on Econometrics-I (Lab) (ECO 3106)

Marks: 25
Submission Date: 15.09.2023 (hardcopy with non-plastic color)
Note: You have to answer the questions on MS word. Necessary screenshots of your work is
essential.
1. Table 1 gives data on the Consumer Price Index (CPI) for seven industrialized countries with
1973–1997 = 100 as the base of the index.

From the given data, compute the inflation rate for each country (Use Excel).

a) Plot the inflation rate for each country against time (i.e., use the horizontal axis for time and
the vertical axis for the inflation rate) (use Excel).

b) What broad conclusions can you draw about the inflation experience in the seven countries?

c) Which country’s inflation rate seems to be most variable? Can you offer any explanation?

d) Plot the inflation rate of Canada, France, Germany, Italy, Japan, and the United Kingdom
against the United States inflation rate (Use Excel).

e) Comment generally about the behavior of the inflation rate in the six countries vis-à-vis the
U.S. inflation rate.

f) If you find that the six countries’ inflation rates move in the same direction as the U.S.
inflation rate, would that suggest that U.S. inflation “causes” inflation in the other countries?
Why or why not?

2. You are given the data in Table 2 for the United States for years 1980–1996.

a) Plot the male civilian labor force participation rate against male civilian unemployment rate
(Use Stata). Eyeball a regression line through the scatter points. A priori, what is the expected
relationship between the two and what is the underlying economic theory? Does the scattergram
support the theory?

b) Repeat (a) for females (Use Stata).

c) Now plot both the male and female labor participation rates against average hourly earnings
(in 1982 dollars) (You may use separate diagrams) (Use Stata). Now what do you find? And how
would you rationalize your finding?

d) Can you plot the labor force participation rate against the unemployment rate and the average
hourly earnings simultaneously (Use Stata)? If not, how would you verbalize the relationship
among the three variables?

3. Table 3 gives data on expenditure on food and total expenditure, measured in rupees, for a
sample of 55 rural households from India (In early 2000, a U.S. dollar was about 40 Indian
rupees).

a) Plot the data, using the vertical axis for expenditure on food and the horizontal axis for total
expenditure, and sketch a regression line through the scatter points (Use SPSS).

b) What broad conclusions can you draw from this example?

c) A priori, would you expect expenditure on food to increase linearly as total expenditure
increases regardless of the level of total expenditure? Why or why not? You can use total
expenditure as a proxy for total income.

4. Table 4 gives data on indexes of output per hour (X) and real compensation per hour (Y) for
the business and nonfarm business sectors of the U.S. economy for1959–1998. The base year of
the indexes is 1992 = 100 and the indexes are seasonally adjusted.

a) Plot Y against X for the two sectors separately (Use Eviews).

b) What is the economic theory behind the relationship between the two variables? Does the
scattergram support the theory?

c) Estimate the OLS regression of Y on X (Use Eviews). Interpret the results.

5. Table 5 gives data on gold prices, the Consumer Price Index (CPI), and the New York Stock
Exchange (NYSE) Index for the United States for the period 1977–1991. The NYSE Index
includes most of the stocks listed on the NYSE, some 1500-plus.

a) Plot in the same scattergram gold prices, CPI, and the NYSE Index (Use Stata).
b) An investment is supposed to be a hedge against inflation if its price and/or rate of return at
least keeps pace with inflation. To test this hypothesis, suppose you decide to fit the following
model, assuming the scatterplot in (a) suggests that this is appropriate:

Gold pricet = β1 + β2 CPIt + ut

NYSE indext = β1 + β2 CPIt + ut

c) Find both of the regression results and interpret (Use SPSS).

6. Table 6 gives data on average public teacher pay (annual salary in dollars) and spending on
public schools per pupil (dollars) in 1985 for 50 states and the District of Columbia.

To find out if there is any relationship between teacher’s pay and per pupil expenditure in public
schools, the following model was suggested: Payi = β1 + β2 Spendi + ui, where Pay stands for
teacher’s salary and Spend stands for per pupil expenditure.

a) Plot the data and eyeball a regression line (Use Eviews).

b) Suppose on the basis of (a) you decide to estimate the above regression model. Obtain the
estimates of the parameters, their standard errors, r2, RSS, and ESS (Use Stata).

c) Interpret the regression. Does it make economic sense?

d) Establish a 95 percent confidence interval for β2 (See the results of (b) in Stata). Would you
reject the hypothesis that the true slope coefficient is 3.0?

e) Obtain the mean and individual forecast value of Pay if per pupil spending is $5,000. Also
establish 95 percent confidence intervals for the true mean and individual values of Pay for the
given spending figure.

f) How would you test the assumption of the normality of the error term? Show the test(s) you
use.

7. Table 7 gives data for the U.K. on total consumer expenditure (in £ millions) and advertising
expenditure (in £ millions) for 29 product categories.

a) Considering the various functional forms (Use SPSS if needed), which functional form might
fit the data given in Table 7?
b) Estimate the parameters of the chosen regression model (Use SPSS) and interpret your results.

c) If you take the ratio of advertising expenditure to total consumer expenditure, what do you
observe? Are there any product categories for which this ratio seems unusually high? Is there
anything special about these product categories that might explain the relatively high expenditure
on advertising?

8. The demand for roses. Table 8 gives quarterly data on these variables:

Y = quantity of roses sold, dozens

X2 = average wholesale price of roses, $/dozen

X3 = average wholesale price of carnations, $/dozen

X4 = average weekly family disposable income, $/week

X5 = the trend variable taking values of 1, 2, and so on, for the period 1971–III to 1975–II in the
Detroit metropolitan area

You are asked to consider the following demand functions:

Yt = α1 + α2 X2t + α3 X3t + α4 X4t + α5X5t + ut

lnYt = β1 + β2 lnX2t + β3 lnX3t + β4 lnX4t + β5 X5t + ut

a) Estimate the parameters of the linear model and interpret the results (Use Eviews).

b) Estimate the parameters of the log–linear model and interpret the results(Use Stata).

c) β2, β3, and β4 give, respectively, the own-price, cross-price, and income elasticities of
demand. What are their a priori signs? Do the results concur with the a priori expectations?

d) How would you compute the own-price, cross-price, and income elasticities for the linear
model?
e) On the basis of your analysis, which model, if either, would you choose and why?

9. a) Choose three variables – one for dependent and other two for independent variables which
have theoretical relationship. Now collect these data from World Bank data indicator site for 50
random countries in 2019. The model is like –
Yi = B1 + B2 X2 + B3 X3 + ui

Where, Y is dependent variable and X2 and X3 are independent variables.

b) Draw two scatter diagram (Use Stata) – one is for Y against X 2 and other is for Y against X 3.
Show the trend line in both diagrams.

c) Take logarithm of the variables (Use Excel) and then show the descriptive statistics (Use
Stata) of these logarithmic variables.

d) Estimate the regression (Use Excel)-

lnYi = B1 + B2 lnX2 + B3 lnX3 + ui

e) Interpret the results.