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Use the data set CONSUMP for this exercise.(i) Estimate a simple regression model relating the growth in real per capita consumption (of nondurables and services) to the growth in real per capita disposable income. Use the change in the logarithms in both cases. Report the results in the usual form. Interpret the equation and discuss statistical significance.(ii) Add a lag of the growth in real per capita disposable income to the equation from part (i). What do you conclude about adjustment lags in consumption growth?(iii) Add the real interest rate to the equation in part (i). Does it affect consumption growth?

(i) See video (ii) Not significant (iii) Not significant

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Chapter 10

Basic Regression Analysis with Time Series Data

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Rabab B.

April 15, 2021

This exercise uses a variation of CONSUMP, which contains time series data including information on growth in real per capita consumption, growth in real per capita disposable income, real interest rates, and other macroeconomic variables.

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hard one thesis. The estimated equation. This equation implies that if income income growth increases by 1% point, consumption growth would increase by points five 71 percentage points. The coefficient on the growth of income is highly significant. You can easily calculate the T statistic, which is 0.571 the estimated coefficient over its standard error, 0.67 and the T start ISS. Roughly 8.5 wow, mhm are to We will add the first leg of income growth to the equation. This is the estimation. Result. The teeth statistic. On the first leg of income growth, it's only about 1.39 so it is not significant at the 5% level, even the 10% level. In addition, the coefficient is not especially large. There is weak evidence of adjustment legs in consumption. Part three. We will add really interest rate to the equation. In Part one, the T statistic on really interest rate is very small. You can see that it's standard error is three times larger than the estimated coefficient, so the T statistic would be roughly 30.3 very small number. We can interpret this estimated coefficient for a one point increase in real interest rate consumption growth reduces by about point 0 to 1% points.

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