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Western University
Economics 2122A/B
Terry Biggs

Dougherty Introduction to Econometrics 4e Instructors Manual 11 MODELS USING TIME SERIES DATA111 The results of linear and logarithmic regressions of consumer expenditure on food FOOD on DPI and a relative price index series for food PRELFOOD using the Demand Functions data set are shown Provide an economic interpretation of the coefficients and perform appropriate statistical tests2 13940053 DPI 0536 PRELFOOD R0987 ODOF432 0001 03722 224050 LGDPI 007 LGPRFOOD R0992 OODFLG039 001 007Answer The linear specification indicates that a 1 billion increase in income causes expenditure to increase by 53 million implying an allocation of 53 cents out of the marginal dollar This appears to be a plausible figure A one point change in the price index causes expenditure on food to increase by 536 million Since FOOD is measured in real terms this is implausible and suggests that the model is misspecified In the logarithmic specification the income elasticity is 050 which seems plausible The price elasticity is 007 which seems a little low At least it has the correct sign 112 Download the Demand Functions data set from the website see Appendix B You should choose or be assigned by your instructor one category of expenditure and it may be helpful to simplify the data set by deleting the expenditure and price variables relating to the other categories Construct a relative price index series for your category by dividing its nominal price series by PTPE the price series for total consumer expenditure and multiplying by 100 Plot the series and try to explain why it has changed over the time period AnswerMany of the plots have strong trends Labourintensive categories of expenditure such as DENT have upward trends attributable to increases in real wages Categories of expenditure where improvements in technology have reduced costs such as TELE have downward trends The downward trend for CLOT is partly attributable to the increasing share of cheap imports The series for GASO and GAS reflect the oil shocks of 197374 and 197879C Dougherty 2011 All rights reserved 2 MODELS USING TIME SERIES DATA 130130 120120 110110100100 9090 80807070 6060 5050BOOK ADM4040195919631967197119751979198319871991199519992003195919631967197119751979198319871991199519992003 130250 240120230220 110210200100190 18090170 16080150140 7013012060110 100509080BUSI CLOT4070195919631967197119751979198319871991199519992003195919631967197119751979198319871991199519992003 1130130120120 110110 1001009090 8080 7070 60605050 DENT DOC 4040195919631967197119751979198319871991199519992003195919631967197119751979198319871991199519992003170130160120 150110 14010013090 12080 11070 100609050 FLOW FOOD 8040195919631967197119751979198319871991199519992003195919631967197119751979198319871991199519992003 2C Dougherty 2011 All rights reserved
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