Strayer ECO470 Week 2 Chapter 2 Homework

Chapter
2

2.8
State
whether the following models are linear regression models (linear in the parameters):
a.
Yi = B1 + B2(1/Xi)
b.
Yi = B1 + B2lnXi
+ ui
c.
lnYi = B1 + B2Xi
+ ui
d.
lnYi = B1 +B2lnXi
+ ui
e.
Yi= B1 + B2B3Xi
+ ui
f. Yi = B1+ B23
Xi + ui2.13Table 2-10 gives data on the nominal interest rate (Y) and the inflation rate (X) for the year 1988 for nine industrial countries. TABLE 2-10 NOMINAL INTEREST RATE CO AND INFLATION (X) IN NINE INDUSTRIAL COUNTRIES FOR THE YEAR 19BB Country r%)X(%) Australia 11.9 7.7 Canada 9.4 4.0 France 7.5 11 Germany 4.0 1.6 Italy 11.3 4.B Mexico 66.3 51.7 Switzerland 2.2 2.0 United Kingdom 10.3 6.B United States 7.6 4.4 Source: R.udiger Dornbusch and Stanley Fischer. Macroeconomics: 5th ed., McGraw- Hill: New York. 1990: p. E52. The original data are from various issues of International Financial Statistics. published by the International Monetary Fund (IMF). a. Plot these data with the interest rate on the vertical axis and the inflation rate on the horizontal axis. What does the scattergram reveal? b. Do an OLS regression of Y on X. Present all your calculations. c. If the real interest rate is to remain constant. what must be the relationship between the nominal interest rate and the inflation rate? That is: what must be the value of the slope coefficient in the regression of Y on X and that of the intercept? Do your results suggest that this is the case? For a theoretical discussion of the relationship among the nominal interest rate: the inflation rate, and the real interest rate, see any textbook on macroeconomics and look up the topic of the Fisher equation, named after the famous American economist: Irving Fisher. 2.22Table 2-16 (on the textbook’s Web site) gives data on investment rate (ipergdp) and savings rate (spergdp): both measured as percent of GDP for a cross- section of countries. These rates are averages for the period 1%0-1974.* a. Plot the investment rate on the vertical axis and the savings rate on the horizontal axis. b. Eyeball a suitable curve from the scatter diagram in (a). c. Now estimate the following model ipergdpi = 81+ 82 spergdp4 + of d. Interpret the estimated coefficients. e. What general conclusion do you draw from your analysis? Note: Save your results for further analysis in the next chapter.