NAME: NABILAH BINTI TALIB

MATRIC ID: EIA190100/17204258

EIA 2006 Basic Econometrics

Semester I 2020/2021
Tutorial 4

1. ¿ M 2t =B1 +B 2∈GDPt + B3 ∈ DIRt + ε t

where M2 = demand for broad money (in Ringgit Malaysia)

GDP = gross domestic product (in Ringgit Malaysia)

DIR = deposit interest rate (in %)

(a) Write down the estimated model and interpret your regression.
Dependent Variable: INM2
Method: Least Squares
Date: 11/27/20 Time: 01:56
Sample: 1975 2015
Included observations: 41

Variable Coefficient Std. Error t-Statistic Prob.  

C -21.85362 1.511866 -14.45474 0.0000

INGDP 1.808820 0.053401 33.87253 0.0000
INDIR -0.029205 0.087934 -0.332130 0.7416

R-squared 0.982240    Mean dependent var 26.11746

Adjusted R-squared 0.981306    S.D. dependent var 1.344265
S.E. of regression 0.183797    Akaike info criterion -0.479613
Sum squared resid 1.283693    Schwarz criterion -0.354229
Log likelihood 12.83206    Hannan-Quinn criter. -0.433955
F-statistic 1050.849    Durbin-Watson stat 0.698272
Prob(F-statistic) 0.000000

¿ M 2t =B1 +B 2∈GDPt + B3 ∈ DIRt + ε t

¿ M 2t =−21.85+1.81∈GDPt −0.029∈ DIRt

When GDP and DIR equal to zero, the demand for money is -21.85.

1% increases in GDP, the M2 increase by 1.81%.

1% increase in DIR, the M2 decreases by 0.029%.

 (b) Set up the appropriate null and alternative hypotheses and test individually whether
the gross domestic product significantly different from zero at 5% level.

¿ M 2t =B1 +B 2∈GDPt + B3 ∈ DIR t + ε t

H 0 :B 2=0

H 1 : B2 ≠ 0

α =0.05

Critical value (41-1, 0.05) = 2.021

1.8088−0
t= =33.8725
0.0534

The GDP is significantly different from zero at 5% level of significance.

(c) Set up the appropriate null and alternative hypotheses and test individually whether
the deposit interest rate significantly different from one at 5% level.

¿ M 2t =B1 +B 2∈GDPt + B3 ∈ DIR t + ε t

H 0 :B3 =1

H 1 : B3 ≠ 1

α =0.05

Critical value (41-1, 0.05) = 2.021

−0.029−1
t= =−11.706
0.0 879

The DIR is significantly different from one at 5% level of significance

(d) Construct the F-statistic for testing 0 ˆ  i = in the regression. Is the statistic
significant at the 5% level?

¿ M 2t =B1 +B 2∈GDPt + B3 ∈ DIRt + ε t

H 0 :B 2=B 3=0

H 1 : Not at all slope coefficients are simultaneousy zero

α =0.05

F α ( k −1 ,n−k )=F 0.95 ( 2,38 )=3.23

F> F α ( k−1 , n−k )=1050.849>3.23

We reject the null hypothesis and conclude that overall regression significant at 5% level of
significance.

(e) Let say you estimate the following model and obtain the following result:
¿ M 2t =B1 +B 2∈GDPt + B3 ∈ DIRt + ε t
Compute the elasticity for the income and interest rate.

Semi log model

Dependent Variable: INM2

Method: Least Squares
Date: 11/27/20 Time: 02:53
Sample: 1975 2015
Included observations: 41

Variable Coefficient Std. Error t-Statistic Prob.  

C 24.18299 0.350319 69.03137 0.0000

GDP 4.39E-12 3.47E-13 12.67099 0.0000
DIR 0.008240 0.043780 0.188201 0.8517

R-squared 0.878530    Mean dependent var 26.11746

Adjusted R-squared 0.872137    S.D. dependent var 1.344265
S.E. of regression 0.480681    Akaike info criterion 1.443130
Sum squared resid 8.780066    Schwarz criterion 1.568514
Log likelihood -26.58417    Hannan-Quinn criter. 1.488788
F-statistic 137.4177    Durbin-Watson stat 0.135783
Prob(F-statistic) 0.000000

Elasticity for the income

´
B2 × GDP=4.39E-12×430755290777.2820 = 1.891

Elasticity for income is elastic because its larger than 1

Elasticity for the interest rate
´
B3 × GDP=0.008 × 5.1483=0.0412

Elasticity for interest rate is inelastic because its smaller than 1