1. Quick/Group statistics/Correlations.

IMP IMP GDP CPI 1.000000 0.956475 0.936771

GDP 0.956475 1.000000 0.991340

CPI 0.936771 0.991340 1.000000

2. Estimating a regression with both explanatory variables

Dependent Variable: IMP Method: Least Squares Date: 06/04/12 Time: 16:30 Sample: 1 24 Included observations: 24 Variable C GDP CPI R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient -147.3240 3.240100 -0.000368 0.922408 0.915018 7.594284 1211.136 -81.10965 124.8233 0.000000 Std. Error 40.24338 0.929796 0.000257 t-Statistic -3.660826 3.484742 -1.430813 Prob. 0.0015 0.0022 0.1672 66.12500 26.05099 7.009137 7.156394 7.048205 0.386475

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat

3. Regressing Imp on GDP

Dependent Variable: IMP Method: Least Squares Date: 06/04/12 Time: 16:32 Sample: 1 24 Included observations: 24 Variable C GDP R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Coefficient -91.60215 1.921256 0.914844 0.910973 7.772931 1329.206 -82.22592 Std. Error 10.38154 0.124971 t-Statistic -8.823559 15.37365 Prob. 0.0000 0.0000 66.12500 26.05099 7.018827 7.116998 7.044872

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter.

F-statistic Prob(F-statistic)

236.3490 0.000000

Durbin-Watson stat

0.309350

4. Reestimating the model with CPI

Dependent Variable: IMP Method: Least Squares Date: 06/04/12 Time: 16:33 Sample: 1 24 Included observations: 24 Variable C CPI R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient -8.201749 0.000520 0.877540 0.871973 9.321251 1911.486 -86.58551 157.6503 0.000000 Std. Error 6.217939 4.14E-05 t-Statistic -1.319046 12.55589 Prob. 0.2007 0.0000 66.12500 26.05099 7.382126 7.480297 7.408171 0.295746

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat

5. Finally running an auxiliary regression of GDP on a constant and CPI. Here t statistics is extremely high while R square is nearly 1.

Dependent Variable: GDP Method: Least Squares Date: 06/04/12 Time: 16:34 Sample: 1 24 Included observations: 24 Variable C CPI R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 42.93764 0.000274 0.982756 0.981972 1.741357 66.71111 -46.32234 1253.784 0.000000 Std. Error 1.161609 7.74E-06 t-Statistic 36.96393 35.40881 Prob. 0.0000 0.0000 82.09583 12.96918 4.026861 4.125033 4.052906 0.611649

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat

Analysis:

1. The correlation among exploratory variables was very high, which might suggest that multicollinearity is present and it might be serious. 2. Standard error or t ratios of the estimated coefficients changed from estimation to estimation suggesting the problem of multicollinearity. 3. The stability of the estimated coefficients was also very problematic, with negative and positive coefficients being estimated for the same variable in two alternative specifications. 4. R square from auxiliary regressions are high suggesting multicollinearity.