CFUNCEST

# CFUNCEST - Intro Macro A Taste of Macro Econometrics...

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Intro Macro N. Sheflin A Taste of Macro Econometrics Estimating a Consumption Function and Making a Forecast The point of this exercise is to introduce you to what (many/most) economists actually do – they use statistics, math, and computers to estimate, test and predict economic relationships developed from economic theory. i.e., they do ECONOMETRICS Congratulations . You are doing so well in Macro, that the President wants you to provide some econometric analysis in which you will use mathematical, statistical and computer tools to estimate, test and predict economic relationships (that’s the definition of ECONOMETRICS ). If done well, you might become an economic advisor to the President. Specifically, he is concerned with how aggregate consumption will do for the rest of the year. You will specify, estimate, and test a Keynesian consumption function, and use it to make a forecast of consumption for this year, and estimate the multiplier with the help of Shazam ( http://shazam.econ.ubc.ca/runshazam/ ) – look up Captain Marvel There will be some questions from this assignment on a future homework assignment, and the final, not to mention when you visit the White House. So make sure you can answer the questions in CAPITALS below. A. Specifying a Consumption Function? WHY WOULD THE PRESIDENT BE CONCERNED WITH FORECASTING CONSUMPTION? WHAT DOES KEYNESIAN THEORY SAY ABOUT THE DETERMINANTS OF CONSUMPTION? SPECIFY (WRITE DOWN) A LINEAR EQUATION FOR A CONSUMPTION FUNCTION. WHAT DOES THEORY SUGGEST ABOUT THE PARAMETERS (SIGNS?, SIZES?) B. Entering and Printing Data in Shazam Go to http://shazam.econ.ubc.ca/runshazam/ Copy and paste the following shazam commands and data into the Enter SHAZAM command ‘box’ and click on the “Click here to send information button” Scroll down the screen to see the results i. What you’ve done is told Shazam to expect 21 observations (years) on 5 variables. Note Shazam instructions end with STOP command ** Consumption function in shazam * note shazam commads are in CAPITALS comments begin with * * always leave the following in * * tell Shazam how many observations (1990-2010) SAMPLE 1 21 * * tell it how many variables and assign names and read in data * note: PCE96 is real personal consumption expenditures * DPI96 is real personal disposable income * SP500 is the S&P 500 index (proxy for wealth)

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CFUNCEST - Intro Macro A Taste of Macro Econometrics...

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