Strayer ECO470 Week 2 Chapter 2 Homework

Chapter 2

2.8

State whether the following models are linear regression models (linear in the parameters):

a. Y_i = B₁ + B₂(1/X_i)

b. Y_i = B₁ + B₂lnX_i + u_i

c. lnY_i = B₁ + B₂X_i + u_i

d. lnY_i = B₁ +B₂lnX_i + u_i

e. Y_i= B₁ + B₂B₃X_i + u_i

f. Y_i = B₁+ B₂³ X_i + u_i

_2.13

_{Table 2-10 gives data on the nominal interest rate (Y) and the inflation rate (X) for the year 1988 for nine industrial countries.
TABLE 2-10 NOMINAL INTEREST RATE CO AND INFLATION (X) IN NINE INDUSTRIAL COUNTRIES FOR THE YEAR 19BB
Country r%)X(%) Australia 11.9 7.7 Canada 9.4 4.0 France 7.5 11 Germany 4.0 1.6 Italy 11.3 4.B Mexico 66.3 51.7 Switzerland 2.2 2.0 United Kingdom 10.3 6.B United States 7.6 4.4
Source: R.udiger Dornbusch and Stanley Fischer. Macroeconomics: 5th ed., McGraw- Hill: New York. 1990: p. E52. The original data are from various issues of International Financial Statistics. published by the International Monetary Fund (IMF).}

_{a. Plot these data with the interest rate on the vertical axis and the inflation rate on the horizontal axis. What does the scattergram reveal?}

_{b. Do an OLS regression of Y on X. Present all your calculations.}

_{c. If the real interest rate is to remain constant. what must be the relationship between the nominal interest rate and the inflation rate? That is: what must be the value of the slope coefficient in the regression of Y on X and that of the intercept? Do your results suggest that this is the case? For a theoretical discussion of the relationship among the nominal interest rate: the inflation rate, and the real interest rate, see any textbook on macroeconomics and look up the topic of the Fisher equation, named after the famous American economist: Irving Fisher.}

_2.22

_{Table 2-16 (on the textbook's Web site) gives data on investment rate (ipergdp) and savings rate (spergdp): both measured as percent of GDP for a cross- section of countries. These rates are averages for the period 1%0-1974.*
a. Plot the investment rate on the vertical axis and the savings rate on the horizontal axis.
b. Eyeball a suitable curve from the scatter diagram in (a). c. Now estimate the following model ipergdpi = 81+ 82 spergdp4 + of d. Interpret the estimated coefficients.
e. What general conclusion do you draw from your analysis? Note: Save your results for further analysis in the next chapter.}