Analysis on Inflation Regression Model

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Analysis on Inflation Regression Model

Done by: Hassan Kanaan & Fahim Melki
Presented to: Dr. Gretta Saab
Due on: Tuesday, January 25, 2011

Outline:
I. Introduction
A. Definition of Variables
B. Type of Variables
II. Background and Literature Review
A. Inflation and Unemployment
B. Inflation and Oil Prices
C. Inflation and GDP
D. Inflation and Money Supply
III. Analysis
A. SPSS 17 analysis
B. E-Views 5 analysis
IV. Conclusion and Recommendation
V. Indexes
A. SPSS17 results Enter and Stepwise (Index 1)
B. E-Views 5 results Stationarity and Granger Causality (Index 2) C. Data Collection (Index 3)

The project that the group will be handling is about Inflation and how can these four variables affect it. The variables are GDP, Unemployment, Money Supply (M2), and Oil Prices. First, a definition on Inflation; inflation is the overall general upward price movement of goods and services in an economy (often caused by an increase in the supply of money); usually as measured by the Consumer Price Index and the Producer Price Index. In the project the group will analyze how the above mentioned variables are going to affect inflation. (Investopedia) An overview on why these variables where chosen and what are these variables. The first variable GDP (Gross Domestic Product), the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. This is a definition of GDP, but what does it have to do with inflation. (Investopedia) Unemployment is another aspect that could affect inflation. Unemployment is an economic condition marked by the fact that individuals actively seeking jobs remain un-hired. (Investopedia) Money supply is the main indicator of how inflation is going to act. Money supply is the total supply of money in circulation in a given country's economy at a given time. There are several measures for the money supply, such as M1, M2, and M3. The money supply is considered an important instrument for controlling inflation by those economists who say that growth in money supply will only lead to inflation if money demand is stable. (Investopedia) Oil prices are the price of oil per barrel in US dollars.

This was just an overview on what are these variables; the group has gathered 357 observations on each variable and will be using both programs that the group has learned which are SPSS 17 and E-Views. In order to view the analysis of both programs please refer to index 1 for SPSS 17(Enter and Stepwise), index 2 for E-Views, and index 3 for the data collection. The information gathered on all the variables (dependent and independent) have an ordinal type and have been gathered from Reuters. There has been many studies conducted in the idea of inflation and what helps in increasing or decreasing it and what does it affect and what affects it. Most of the studies that were on the topic of inflation addressed its effect on Unemployment. Many have tried to understand how these two important things affect each other and one of the papers written on the subject is Inflation and Unemployment in General Equilibrium by Guillaume Rocheteau and Peter Rupert and Randall Wright. In their paper the authors describe how unemployment and inflation work together. The main idea of this paper is “We show that the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions” (2007). Many other studies were made on the idea such as “Inflation Versus Unemployment: The Worsening Trade-Off” by George Perry who also worked on how unemployment and inflation. Michael LeBlanc and Menzie D. Chinn have written on the impact of oil prices on inflation. In their paper titled “Do High Prices Presage Inflation? The Evidence from G-5 Countries” they speak on how oil...
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