EviewsLecture

# EviewsLecture - Econ 322 Introduction to Eviews In this...

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Econ 322: Introduction to Eviews In this lecture we will review two regression packages that will allow you to put into practice the material taught in this class. Consider the following economic problem: In the macroeconomics literature there are two competing theories concerning consumption behavior. According to Keynes, aggregate consumption is determined by aggregate income. Alternatively, the classical economists feel that consumption should be inversely (negatively) related to interest rates. The file theories.dat is an ascii file containing observations on U.S. consumption expenditures (in billions of 1982 dollars), disposable personal income (in billions of 1982 dollars) and the real interest rate for the years 1955-86. We will use these data to answer the following empirical questions. (a) Set up the economic and statistical model for each hypothesis. (b) Estimate the unknown parameters for each model and make the relevant tests of hypotheses. (c) Based on these data and your econometric results, what are your conclusions relative to the validity of the two hypotheses? (d) For the Keynes' hypothesis, compute and interpret an interval estimate for the marginal propensity to consume. To answer these questions we will an econometric regression package: Eviews

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Information about Eviews Eviews is a regression package designed by Quantitative Micro Software and can be found at http://www.eviews.com The full professional version of this software is very expensive (\$900!) but is available to students in the economics micro-computer centre in the basement of New Jersey Hall and is available in Rutgers University computer labs. There is a student version of the software that is available for approximately \$40 from the website given above. Back to the problem: Lets first answer part a) of the problem. Let C = Consumption, M = Personal Disposable Income and R = Real Interest Rate. (a) Keynes' Theory : An economic model that relates consumption to income using a linear relationship is C M t t 1 2 . The corresponding statistical model is 12 t t t CM where we will assume the t are independent random variables with 2 t ~ (0, ) t .
Classical Economist's Theory : In this case we specify the linear economic model relating consumption to interest rate as C R t t 1 2 .

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EviewsLecture - Econ 322 Introduction to Eviews In this...

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