Econ1002ex5_all

Econ1002ex5_all - ECON1002: Applied Economics Exercise 5:...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON1002: Applied Economics Exercise 5: Consumption/Saving and Diff-in-diffs Answers to question 1 must be handed in. Hand in to ECON 1002 coursework box in Student Common Room (basement, Drayton House) by midday on Thursday 19th March 2009. 1. * The data for this question can be found in the file cexp.dta. The variables relate to the UK over the period 1969-1984. (a) Permanent income can be thought of as the average amount of resources that an individual expects to have available for consumption each year during the rest of her life. Suppose consumers expenditure C t in period t is related to perceptions of permanent income Y P t in period t according to C t = + Y P t and suppose that consumers update their perceptions of permanent income according to the rule Y P t- Y P t- 1 = ( Y t- Y P t- 1 ) + t which implies that Y P t = Y t + (1- ) Y P t- 1 + t where Y t is actual disposable income and t is a random error term reflecting new information on future incomes. Show that C t = + (1- ) C t- 1 + Y t + t and use the data to estimate such an equation by OLS. How sensitive to current income do perceptions of permanent income seem to be? What is your estimate of the marginal propensity to consume out of permanent income,...
View Full Document

Page1 / 2

Econ1002ex5_all - ECON1002: Applied Economics Exercise 5:...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online