Empirical Assignment

Research Methods for Economics

Shahzad Ahmad
Tasks

Data Handling
Basic Regression
Heteroscedasticity
Autocorrelation
Multicollinearity
Automatic Model Selection
ARIMA Modeling
Macro-Econometric Modeling

Presentation Title 9/3/20XX 2

Data Handling

• Please refer to Excel file “Data Handling.xlsx”

• Practice following three formulas for data handling:
 Vlookup
 Hlookup
 Combination of index and match

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Basic Regression

• Refer to EViews workfile “Wooldridge.wfl”.

• Regress log of wage on following variables: intercept marrmale
marrfem singfem educ exper exper^2 tenure tenure^2

• Interpret impact of education on wage.

• Explain the variables exper^2 and tenure^2 and interpret
their coefficients

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Heteroscedasticity

• Refer to EViews workfile “Wooldridge.wfl”.

• Regress log of wage on following variables: intercept marrmale
marrfem singfem educ exper exper^2 tenure tenure^2

• Generate a chart of actual, fitted and residuals

• Perform White test to detect heteroscedasticity
• Look at residuals chart and result of White test, conclude about
presence or absence of hetero in the estimate model.

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Autocorrelation

• Refer to Excel file “ser_corr.xlsx” which contains quarterly

data of real consumption, disposable income and price level.
• Import the data in Econometric software to run regression.
• Regress log(cons) on log(disp) and log(price)
• Prepare actual, fitted and residuals chart
• Look at DW test stat to detect autocorrelation and interpret
the result
• Perform serial correlation LM test and interpret the results
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Autocorrelation

• How can we remove autocorrelation from the estimated

model?
• Estimate the model with time trend and check for presence of
auto through BG LM test.
• Include lagged dependent variable and check for auto through
BG LM test.
• Run the regression in log differenced variables and check for
autocorrelation
• Should we include time trend in log differenced model?
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Multicollinearity

• Assume you want to check the impact of import, exports and

trade balance FX reserves.
• The data is given in Excel file “Reserves.xlsx”.
• Import the data in software and regress reserves on imports,
exports and trade balance.
• Interpret the results

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Multicollinearity

• The data is given in Excel file “Reserves.xlsx”.

• Suppose you want to forecast exports using AR term(s) and
seasonal pattern.
• Regress exports on its own lag and four seasonal dummy
variables. Include intercept.
• Interpret the results.

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Stationarity and ADF Test

• Refer to Excel file “CPI.xlsx”

• Import the quarterly CPI data in Eviews.
• Perform seasonal adjustment.
• Perform ADF test on log of seasonally adjusted CPI.
• Determine order of integration.
• Construct correlogram and interpret.
• Construct suitable ARIMA model OR construct ARIMA(1,1,1) model.
• Forecast CPI for next 8 quarters using estimated model.
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Macro-Econometric Model –
static simulation
• Refer to Eviews program “macro_model.prg” and the data file
“Macro_model.xlsx”
• Run the program to estimate behavioral equations and add
identity to the model object.
• Perform static simulation for sample 1960q1 – 1999q4.
• Compare results of static simulation with actual data using line
charts for all endogenous variables

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Macro-Econometric Model – in-
sample dynamic simulation

• Refer to Eviews program

“macro_model.prg” and the data file
“Macro_model.xlsx”
• Run the program to estimate behavioral
equations and add identity to the model
object.
• Perform dynamic simulation for sample
1985q1 – 1999q4.
• Compare results of dynamic simulation
with actual data using line charts for all
endogenous variables
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Macro-Econometric Model –
out of sample forecast
• Refer to Eviews program “macro_model.prg” and the data file
“Macro_model.xlsx”
• Run the program to estimate behavioral equations and add identity
to the model object.
• Construct exogenous variables for out of sample forecasting as
follows:
• Assume money supply constant at last value
• Estimate an AR process for govt. expenditure
• Perform out of sample forecast of endogenous variables over the
sample 2000q1 – 2005q1
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