3.

2 ORDINARY LEAST SQUARE ESTIMATION

Regression using ordinary least squares (OLS) is frequently referred to as linear

regression. A statistical method for estimating a particular kind of linear regression
model is called ordinary least square (OLS). This method minimises the sum of the
squared vertical distances between the observed replies in the dataset and the predicted
response from the linear approximation.

The resulting estimator may be expressed by a straightforward formula when there is

only one regressor on the right side of the equation

𝒀𝒊 = 𝜷𝟎 + 𝜷𝟏𝑬𝑿𝒊 + 𝜷𝟐𝑰𝑵𝑭𝒊 + 𝜷𝟑𝑮𝑫𝑷𝒊 + +𝜺𝒊

Where i is the time series data, Y is Unemployment, CPI is Consumer Price Index,
GDP is Gross Domestic Product, LF is Labor Force, POP is Population and 𝜀 is the
error term of the regression.

The equation model is written as follow:

Log(UNEM)= -126.95-(-3.1037) Log (CPI) + -0.8561 Log (GDP) + -3.7748 Log

(LF) + 11.689 Log (POP)

Where,

UNEM = Unemployment

CPI= Consumer Price Index

 GDP = Gross Domestic Product

LF = Labor force

POP = Population

The value of the log (UNEM) is -126.95 while log (CPI) is also showing a
negative value. Thus, a negative correlation between the log (UNEM) and log (CPI).
The p-value of the log (UNEM) and (CPI) is 0.0, which is lower than the 0.05
significance level, rejecting the null hypothesis (H0).

The log (IMP) and log (EX) are expected to be positively related. Given that the
p-value is 0.2124, which is greater than the 0.05 significance level. We do not reject the
null hypothesis. Therefore, log (GDP) is not statistically significant at a 5%
significance level. It means this variable does not determine unemployment rate.

Besides, the log (IMP) and log (INF) are expected to be positively related. The
p-value of log (INF) is 0.6926, which is greater than the 0.05 significance level. Thus,
we do not reject the null hypothesis because it is not statistically significant.
HETEROSCEDASTICITY TEST

The p-value (0.2300) is greater than 5% significance level. Hence, the null hypothesis
is not rejected. However, there are several tests needed to be carried out to confirm this.

The p-value (0.3814) is greater than 5% significance level. Hence, the null hypothesis
is not rejected. Hence, we do not reject the H null. It means no heteroscedasticity
problem for both Breusch-Pagan-Godfrey Test & White heteroscedasticity Test.