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Unformatted text preview: Solutions Manual Chapter 10/ Economics of Innovation and Growth/hl 1 SOLUTIONS MANUAL CHAPTER 10 Contain EXAMPLES 10.1 The Static Philllips Curve x 10.2 Effects of Inflation and Deficits non Interest Rates x 10.3 Puerto Rican Employment and the Minimum Wage. x 10.4 Effects of Personal Exemption on fertility rates x 10.5 Antidumping and Filing Chemical Imports x 10.6 Election Outcomes and Economic Performance x 10.7 Housing Investment and Prices z 10.8 Fertility Equation 10.9 Puerto Rican Employment 10.10 Housing Investment 10.11 Effect of Antidumping Filings PROBLEMS 10.110.6 x COMPUTER EXERCISES 10.710.17 z X = Partly, z= partially Solutions Manual Chapter 10/ Economics of Innovation and Growth/hl 2 Example 10.1: Static Phillips Curve Some definitions: (1): A sequence of random variables indexed by time is called a stochastic process or a time series process. (2) A Static Model is modelling a contemporaneous relationship between the dependent variable (y) and the independent variables (z). Usually, a static model is postulated when a change in (z) at time (t) is believed to have am immediate effect on (y). An example of a static model is the static Phillips curve, given by Inf t = + 1 z 1 +u t , t=1,2,.n where inf(t) is the annual rate and unemp(t) is the unemployment rate. This form of the Phillips curve can assumes a constant National rate of unemployment and constant inflation expectations, and is can be used to study the contemporaneous tradeoff between inflation and unemployment. To determine whether there is a tradeoff, on average between unemployment and inflation, we can test Ho: 1=0 aginst H1 < 0 in equation Inf t = + 1 z 1 +u t , t=1,2,.n In the classic linear model assumptions hold, we can use the usual OLS t statistic, using annual data for the US in the data set Phillips.dta, for the years 1948 through, we obtain inf t 1.42 +0.468 unemp t tstatic (1.72) (0.289) n=49 R2=0.053 R2adj=0.033 use PHILLIPS.DTA reg inf unem Source  SS df MS Number of obs = 49 + F( 1, 47) = 2.62 Model  25.6369575 1 25.6369575 Prob > F = 0.1125 Residual  460.61979 47 9.80042107 Rsquared = 0.0527 + Adj Rsquared = 0.0326 Total  486.256748 48 10.1303489 Root MSE = 3.1306  inf  Coef. Std. Err. t P>t [95% Conf. Interval] + unem  .4676257 .2891262 1.62 0.112 .1140212 1.049273 _cons  1.42361 1.719015 0.83 0.412 2.034602 4.881822  Comment This equation does not suggest a tradeoff between unemp and inf: >0. The tstatistic for b1 is about 1.62, which gives a pvalue againt a twosided alternative about 0.11. Thus, in anything, there is a positive relationship between inflation and employment....
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 Spring '08
 Jeon
 Econometrics, Deficit, Inflation, Interest Rates

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