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Columbia University
W3412
Fall 2015
Problem Set 9
Introduction to Econometrics
Profs. Seyhan Erden and Miikka Rokkanen
for all sections.
Part I:
True, False, Uncertain with Explanation:
(a) The first difference of the logarithm of approximately equals the growth rate of Y when
the growth rate is small.
(b) An autoregression is a regression of a dependent variable on lags of regressors.
(c) To construct a good forecast one should use only exogenous variables as regressors.
(d) One should not use OLS to estimate dynamic effect if data is exogeneous, and not strictly
exogeneous.
Part II:
1. The file FISH.dta contains 97 daily price and quantity observations on fish prices at the
Fulton Fish Market in New York City. Use the variable log(avgprc) as the dependent
variable.
(a) Regress log(avgprc)on four daily dummy variables, with Friday as the base. Include a linear
trend. Is there evidence that price varies systematically within a week?
(b) Now, add the variables wave 2 and wave3, which are measures of wave lengths over the past
several days. Are these variables individually significant?
(c) Describe a mechanism by which stormy seas would increase the price of fish
(d) What happened to the time trend when wave2 and wave3 were added to the regression? What
must be going on?
(e) Test the errors for AR(1) serial correlation.
(f) Obtain the Newey-West standard errors using four lags. What happens to t statistics on wave2
and wave3 ? Did you expect a bigger or a smaller change compared with the usual OLS t
statistic?
(a) Estimate the above equation using monthly macro CPI and UNEMPRATE .dta and
report the results in the usual form. First generate inflation (inf) using CPI. Do the
results suggest a tradeoff between unemployment and inflation?
(Note that you need to let STATA know that you are using time series data, for this I
suggest to first run following commands to generate a time variable)
gen time=m(1948m1)+_n-1
can use the log approximation. Run an AR(1) model for GROWTH and report your results
Forecast growth for the 4th quarter of 2013using the model in part (a)
Run an AR(2) model for GROWTH and report your reults
Forecast GROWTH for the 4th quarter of 2013 using the model in part (c)
Run an ADL(1,2) model for GROWTH using lagged GROWTH and unemployment rate,
report your results
Does unemployment rate Granger cause GROWTH? Show your work
Run an ADL(2,4) model for GROWTH using lagged GROWTH and Inflation (generate
inflation using CPI), report your results
Does Inflation Granger cause GROWTH
Following questions will not be graded, they are for you to practice and will be discussed at
the recitation:
1.
2.
3.
4.
5.
6.
SW Exercise 14.1.
SW Exercise 14.2.
SW Empirical Exercises 14.1
SW Exercises 15.1
SW Exercises 15.1
SW Exercises 15.2