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Homework-3 solution

Research Methodology

1.The following table gives data on imports, GDP and the Consumer Price Index(CPI) for the United states over the period 1970-1998. You are asked to consider the following model:

Ln(Imports)t=[pic]

a. Estimate the parameters of this model using the data given in the table.

b. Do you suspect that there is multicollinearity in the data?

Table: US Imports, GDP and CPI, 1970-1998

|Observation |CPI |GDP |Imports |Observation |CPI |GDP |Imports |
|1970 |38.8 |1039 |39866 |1985 |107.6 |4213 |338088 |
|1971 |40.5 |1128 |45579 |1986 |109.6 |4452 |368425 |
|1972 |41.8 |1240 |55797 |1987 |113.6 |4742 |409765 |
|1973 |44.4 |1385 |70499 |1988 |118.3 |5108 |447189 |
|1974 |49.3 |1501 |103811 |1989 |124 |5489 |477365 |
|1975 |53.8 |1635 |9818 |1990 |130.7 |5803 |498337 |
|1976 |56.9 |1823 |124228 |1991 |136.2 |5986 |490981 |
|1977 |60.6 |2031 |151907 |1992 |140.3 |6318 |536458 |
|1978 |65.2 |2295 |176002 |1993 |144.5 |6642 |589441 |
|1979 |72.6 |2566 |212007 |1994 |148.2 |7054 |668590 |
|1980 |82.4 |2795
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