Problem Set 3 Econometrics I Due 2/17/2011 Resource Economics 702 (8) 1. The data set money.xlsx on the course website contains time series data for the following variables: M2= seasonally adjusted M2 monetary aggregate measured in billions of dollars; GDP= seasonally adjusted annual real GDP measured in billions of chained 1996 dollars; interest= discount rate (%). a. What signs do you expect for the parameters of the model: b. Estimate the model and interpret the estimates. c. Are the estimated effects of GDPand interestrates statistically significant? Explain clearly your conclusions. d. Determine the elasticity of demand for money with respect to income (GDP). Determine the elasticity of demand with respect to the interestrate as well. Provide an interpretation for each elasticity. e. Determine the estimated covariance matrix for the OLS estimators
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