代写theoretical model of inflation

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    • 代写theoretical model of inflation
    Assignment 41
    [Due: Friday, 7 October 2016, 11.55 pm]
    (1) (30 marks) Professor David Romer proposed a theoretical model of inflation which
    implies that more open countries should have lower inflation rates. His empirical analysis
    explains average annual inflation rates (inf) in terms of the average share of imports in GDP –
    which is his measure of openness (open). In addition to estimating the key equation by OLS,
    he uses instrumental variables. While Romer does not specify both equations in a
    simultaneous system, he has in mind a two-equation system:
    1 2 3 1
    2
    1 2 3 4 5 2
    (1)
    (2)
    t
    t t
    inf open lpcinc u
    open inf lpcinc lland lland u
      
        
       
         
    where lpcinc is the 1980 per capita income (in US dollars) in logarithm and lland is the land
    area of the country (in square miles) in logarithm. The empirical results from 114 countries
    using EViews are printed below. Answer the following questions. (Please refer to: Chapter 16,
    Wooldridge).
    a) (10 marks) Why might OLS be biased for equation (1)?
    b) (10 marks) Are both equations (1) & (2) identified? Explain.
    c) (10 marks) Do you think lland and lland2 are appropriate IVs for openness? Is there
    any empirical evidence to support that? Explain.
    1 This assignment weights 30% of overall grade. Cheating is strictly forbidden. You are always allowed to study
    together but you can’t return the same homework. Once an assignment has been graded, I will post the suggested
    answers on the Stream. Don’t forget to keep a copy of your homework for yourself before you return the
    original ones just in case it gets lost!
     
    (2) (30 marks) Use the data in Consump.wf1 for this exercise and please refer to chapter 18 in Wooldridge. Use Eviews package program, and attach the relevant outputs. Correct results with no attachment gets zero point.
    i) Let yt be real per capita disposable income. Use the data through 1989 to estimate the model
    yt =  + t + yt-1 + ut
    and report the results in the usual form.
    ii) Use the estimated equation from part (i) to forecast y in 1990. What is the forecast error?
    iii) Compute the mean absolute error of the one-step-ahead forecasts for the 1990s (meaning from 1990 to 1995), using the parameters estimated in part (i).
    iv) Compute the MAE over the same period, but drop yt-1 from the equation. Is it better to include yt-1 in the model or not?
    (3) (30 marks) (Please refer to: Chapter 15, Wooldridge) Use the data in Wage2modified.wf1 for this exercise and please refer to chapter 15 in Wooldridge. Use Eviews package program and then attach the relevant outputs. Correct results with no attachment gets zero point.
    The main model is
    log(wage) = 0 + 1educ + e
    where educ is the number of years of education.
    i) The variable brthord is birth order (brthord is one for a first born child, two for a second-born child and so on). Explain why educ and brthord might be negatively correlated. Regress educ on brthord (including constant) to determine whether there is a statistically significant negative correlation.
    ii) First regress log(wage) on educ (the equation above) using OLS and report the results in the usual form. Second use brthord as an IV for educ in equation (above). Report and compare the results.
    iii) Now suppose that we include number of siblings (sibs) as an explanatory variable in the wage equation; this control for family background, to some extent:
    log(wage) = 0 + 1educ + 2 sibs + e
    Suppose that we want to use brthrord as an IV for educ, assuming that sibs is exogenous. What is the reduced form for educ? State and test the identification assumption.
    iv) Estimate the equation from part (iii) using brthrord as an IV for educ (and sibs as its own IV) {meaning you need to run two stage least square regression using brthrord as an IV for educ} Also comment on the standard errors of estimated coefficients of educ and sibs (interpret if these variables are significant as well).
    4) (10 marks) Suppose that we want to estimate the effect and several variables on annual saving and that we have a panel data set on individuals collected on January 31, 1990 and January 31, 1992. If we include a year dummy for 1992 and use first differencing, can we also include AGE in the original model? Explain.
    代写theoretical model of inflation