Key - Problem Set 2 2011

# Key - Problem Set 2 2011 - Problem Set 2 Resource Economics...

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Unformatted text preview: Problem Set 2 Resource Economics 702 Econometrics I 1. A Sampling Experiment. Assume that nominal rates of interest (r) are affected directly by inflation (i). Observed nominal rates are also affected by other purely stochastic shocks (u). Thus, our population regression equation is: 1 t t t r i u . For our experiment, we’ll need to have values for the true population parameters. We assume that all inflation is included perfectly in the nominal interest rates and that the real rate of interest is 3.5%. For our experiment, we will create 204 estimates of the population parameters, create confidence interval estimates and test true null hypotheses. (5 pts.) The key things you should pull out of this paragraph are the given population regression equation and the values for the parameters that are assigned for our experiment. Substituting the parameter values gives you the population regression equation : 3.5 1.0 t t t r i u a. The file “ PSet 2 Disturbances.xls ” (available at: http://courses.umass.edu/resec702/problemsets.html ) contains 205 sets of randomly generated disturbances, (0,4) u N . The first column of the data set includes a randomly generated vector of inflation rates. We will all use the same vector of inflation rates, the independent variable. Your disturbances are: b. Construct 6 vectors of dependent variables using the population regression equation given above and the population parameter given in the discussion....
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## This note was uploaded on 12/08/2011 for the course ECON 702 taught by Professor Staff during the Spring '08 term at UMass (Amherst).

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Key - Problem Set 2 2011 - Problem Set 2 Resource Economics...

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