1.8 SUMMARY AND CONCLUSIONS (Damodar N. Gujarati )

1. The Key idea behind regression analysis is the statistical dependence of one variable, the dependent variable , on one or more other variables, the explanatory variables

2. The objective  of such analysis is estimate and/or predict the mean or average value of the dependent variable on the basis  of the known or fixed values of the explanatory variables.

3 In practice the success of regression analysis depends on the availability of the appropriate data. This chapter discussed the nature , sources and limitations of the data  that  are generally available for research, especially in the social sciences

4. In any research, the researcher should clearly state the sources of the data used in the analysis. their definitions of collection, and any gaps or omissions in the data as well as any revisions in the data. Keep in mind that the macroeconomic data published by government are often revised.

5. Since the reader may not have the time, energy, or resources to tack down the data, the reader has the right to presume that the data used by the researcher are properly gathered and that the computations and analysis are correct.

EXERCISES

1.1 Table 1.2 give data on the Consumer  Prive Index (CPI) for seven industrialized countries with 1982-1984 =100 as the base of the index.
a. From the given data , compute the inflation rate each country.16

b. 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)

c. What broad conclusions can you draw about the inflation experience in the seven countries?

d. Which Country 's inflation rate seems to be mos variable ? can you ofter explanation?

TABLE 1.2

 

1.2. a. Plot the inflation rate Canada, France, Germany, Italy, Japan United Kingdom against the Unite States inflatin rate.

     b. Comment generally  about the behavior of the inflation rate  in the  six countries vis-a-vis the U.S. inflation rate.

     c. If you find that the six countries ' inflation rate move in the same direction as the U.S. inflantion rate,  would that suggest that U.s. inflation 'causes" inflation in the other countroes? Why or Why not ?

1.3. Table  1.3 gives the foreign exchange rates for seven industrialized countries for years 1977-1998. Exept for the United Kingdom, the exchange rate is defined as the units of foreign currency for one  U.S. dollar; for United Kingdom, it is defined as the number of U.S. dollar for one U.K. pound.

       a. Plot these exchange  rates against time and comment on the general behavior of exchange rates over     the given time period. 

    b.The dollar is said to appreciate if it can buy more unit of foreign currency. Contrarily, it is saidto depreciate if buy fewer units  of a foreign currency. Over the time period 1977-1998,what  has been the general behavior  of the U.S. dollar ?. Incidentally, look up any texbook on macroeconomic or international economics to find out what factors determine the  appreciation or depreciation of a currency.

1.4The data behind the M1 money supply in figure 1.5 are given in table 1.4 Can you give reasons why the money supply has been increasing over the time period shown in table?

TABLE 1.3

TABLE1.4

 

1.5. Suppose you were to develop an economic model activities.say, the hours spent in criminal activities (e.g.selling illegal drugs). What variable would you consider in developing such a model? see if your model matches the one developed by the Nobel laureate economist Gary Becker.17

1.6. Controlled experiments economics: on April 17,2000, President Clinton signed into law a bill passed by both Houses of the U.S. Congress that  lifted earnings limitations on Social Security recipients. Until then, recipients between the ages of 65 and 69 who earned more than $17 ,000 a year would lose 1 dollar's with of  Social Security benefit for every 3 dollars of income earned in excess of $17 ,000. How Would you devise a study to assess the impact of this change in the law ? Note: there was no income limitation fore recipients over the age of 70 under the old law.

TABLE 1.5

1.7. The data presented in table 1.5 was published in the march 1, 1984 issue of the Wall Street Journal. It relates to the advertising budget ( in millions of dollar's) of 21 firm for 1983 and millions of impression retained per week by the viewers of the products of these firm. The data are based on a survey of 4000 adults in which users of the product category in the pas week.

        a. Plot impressions on the vertical axis and advertising expenditure on the horizontal axis.

        b. What can you say about the nature of the relationship between the two variables?

        c  Looking at your graph, do you think it pays to advertise? Think about all those commercial shown on Super Bowl Sunday or during the world series.

Note: We will explore further the data given in table 1.5 in subsequent chapters.