The annual data is from 1955 to 1994, it is the finnish aggregate and it has extracted logarithm of income as, natural logarithms of real per capita consumption(LCFI) and natural logarithm of real per capita income (LGFI), the real interest rate (RFI), and the rate of unemployment (UFI).here, income is positively related to consumption economics and unemployment and interest rate is negatively related.
The real goal of mine is for understanding the above data with the help of e-views application considering it is really valid according to economics which shows that income is positively related to consumption economics and unemployment and interest rate is negatively related.
. Here, the following variables are symbols of natural logarithm of real per-capita consumption (LCFI), the natural logarithm of real per-capita income (LGFI), the real interest rate (RFI) and the rate of unemployment (UFI). β1, β2, β3, β4, β11, β21, β31, β41 are coefficients to be estimated and ut is a stochastic error term. Subscripts t and t-1 refer to the time period and solve it with help of e-views application.
There are two following models have to be tested for misspecification tests. (5% level of significance is applied for all the tests, except heteroscedasticity test in model 3 (1%).) to do that we need to Apply general-to-specific methodology to the 2nd model, parsimonious model has to be obtained, and tested.
(a) LCFIt = β1+ β2LGFIt + β3RFIt + β4UFIt + ut
(b) LCFIt = β1+ β2LGFITt + β3RFIt + β4UFIt + β11LCFIt-1 + β21LGFIt-1 + β31RFIt-1 + β41UFIt-1 + ut
Misspecification tests applied in this Assignment coursework include:
1. 1st order autocorrelation: Durbin Watson (DW) test,
2. 1st order autocorrelation: Breusch-Godfrey test,
3. Non-linear functional form: Ramsey’s RESET test,
4. Non-normally distributed residuals: Jarque-Bera test,
5. Heteroscedasticity: White’s test without cross terms,
6. First order ARCH effect... [continues]
Cite This Essay
(2009, 04). Quantitative Research Methods. StudyMode.com. Retrieved 04, 2009, from http://www.studymode.com/essays/Quantitative-Research-Methods-201012.html
"Quantitative Research Methods" StudyMode.com. 04 2009. 04 2009 <http://www.studymode.com/essays/Quantitative-Research-Methods-201012.html>.
"Quantitative Research Methods." StudyMode.com. 04, 2009. Accessed 04, 2009. http://www.studymode.com/essays/Quantitative-Research-Methods-201012.html.