Suppose You Are Interested in Explaining Variation in Quarterly Net

question 9

Essay

Suppose you are interested in explaining variation in quarterly Net Exports (billions)and that you estimate the regression function (standard errors in parentheses) $\begin{array} { l } \text { Net } \widehat {Exp}orts_ { t } =& - 207.66 +& 0.48 \text { Exchange } \text {Rate }_{t } +& 1.39 \text { Personal Income } _ { t } \\& (42.31) &(0.15) &\text { (0.43) } \\n = 116 \\R ^ { 2 } = .9528 \\\end{array}$
a)How many years' worth of data do you have? How can you tell? Explain.
b)Do you suspect that autocorrelation might be present in this model? If so,what type? Why? Explain.
c)How would you use the Regression test for AR(1)to determine whether autocorrelation is present? Explain.
d)Suppose you know that the autocorrelation follows an AR(1)process.How would you use the Prais-Winsten method to correct for the autocorrelation? Explain.
e)When using the Prais-Winsten method,how many observations will you have in your final analysis? Why? Explain.

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Definitions:

Item Value

The worth or usefulness of a specific good or service, often determined by factors like utility, demand, and rarity.

Ownership

The legal right or status of having control over something, typically property or goods.

Traditional Economic Theory

A framework that explains economic decisions and behaviors based on the assumption that agents are rational and seek to maximize utility or profit.

Demand Curves

Graphs showing the relationship between the price of a good and the quantity demanded by consumers at those prices.