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Econometrics - Essay Example

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In this book, the aggregate output in United States from 1921 to 1941 is estimated based on the two components of aggregate demand,…
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Download file to see previous pages Moreover, the scatter plots of income versus consumption and income versus investment are also plotted. The graphs show that the actual plots of all the variables except the government non-wage income show fluctuating trends with alternative peaks and troughs in the period of analysis. The correlograms of all the variables except the government non-wage income become zero from the third order ones. This shows that all the variable except the government non-wage income show fluctuating trends in the period of analysis. Government non-wage income show steady rising trend in the period of analysis. The correlogram of this variable is not gradually declining and remains the same. The scatter plots show that there is a significant positive correlation between income and consumption .Though a positive correlation can be seen income and investment, it is not so significant compared to the previous one.
The OLS estimation for consumption shows perfect model fit. The coefficients for wage income and profit income are positive and significant. One percent rise in wage income leads to a significant rise of 19 percent consumption while one percent rise in wage income leads to a significant rise of 79 percent in consumption. The actual and fitted values of Consumption shows perfect fit as shown from the graphs in appendix 2. The 2SLS estimation shows that only wage income is significant in determining consumption .Here the coefficient for wage income has increased to 81.6 percent compared to the OLS estimation. At the same time profit income lost its significance here. The actual and fitted vales show perfect fit in this case also.
For the estimation of investment with OLS, current and lagged values of profit income are positive and significant while lagged value of capital stock is significant and negative in determining investment. One percent rise in current and lagged ...Download file to see next pagesRead More
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