Economics Question
State University of New York College at Buffalo Department of Economics and Finance ECONOMETRICS ECO 424 FINAL PROJECT 1. Overview: The project involves four parts. The first part of the project is to find the data you want to use. Second, you must produce a theory which can be tested using a regression. You will do this in Excel or SAS (Run a SAS program which will estimate the regression equation developed in the two parts of the projectonly if you are in Buffalo). The final part of the project is to write up the theory and the statistical results in a 3 page paper. 2. Data Sets: During the semester we have found and used a number of data sets on the internet. You can use any of these or pick one of your own. Note if you are in senior seminar, double dipping is allowed so you might want to use the same dataset. Some examples are: Census Data: https://data.census.gov/cedsci/ BLS: http://www.bls.gov/cpi/data.htm BEA: http://bea.gov/ Federal Reserve Fred: https://research.stlouisfed.org/fred2/ Federal Reserve (Survey of Consumer Finance): http://www.federalreserve.gov/econresdata/scf/scfindex.htm NBER Datasets (A large number of datasets): http://www.nber.org/data/ CDC Surveys: http://www.cdc.gov/nchs/surveys.htm Economic Report of the President: https://www.gpo.gov/fdsys/browse/collection.action?collectionCode=ERP 3. Developing a Theory: The theory which you develop will depend on which of the data sets you use. After choosing a data set you must come up with a theory which can be tested by running a regression. An example of a theory might be that GDP (Y) is a function of the money supply (M), past GDP (Y-1) and real interest rates (r), which can be written as: Y = 0 + 1 M + 2 Y-1 + 3 r + U For your theory you must have one dependant (Y) and three independent (M, Y-1 , r) variables. You can create any theory which you want. Do not worry about whether your theory is correct, you will not be graded on the theory but on how you present the theory and the statistics. 4. Analyzing the Theory: Any theory which you develop must involve the determination of the sign pattern and the magnitude for each of the coefficients, for example 0 might be assumed to be positive and about the same size as last year’s GDP. 3 on the other hand should be negative, or that GDP goes down as interest rates go up. The signs of the betas are what makes up your theory and is what you will test when you run your SAS project. 5. SAS Project: Copy the data set which you have chosen from my account, as you have done in the other computer projects this semester. Then use the following statements: Proc Reg; Model Y = X1 X2 X3 /DW WHITE VIF; Proc Autoreg; Model Y = X1 X2 X3 / nlag=1; Proc Corr; Var X1 X2 X3; Proc Means; Var Y X1 X2 X3; These statements will produce the regression results or will help in explaining and testing your theory. Notice that these statements are all part of projects 4 and 5 which you will have completed before you start your project. If you are having problems running your computer program review what you did in your past projects. Excel Project: Use the data Analysis in the DATA tab of excel like in class. Projects 4 and 5 show you how to do this. 6. Statistical Results: The results which you obtain will test your theory. Did you get the signs on the parameters, which you expected? If not can you explain why you didn’t get the expected results. Are the size of the parameters what you predicted and again if not why. You will also have to test to see if the parameters are statistically significant by using a t-test. You will also want to test the explanatory power of your theory using the R2 and the F-test. In order to make sure that your model follows the standard assumptions, you must also use the Durbin Watson test to rule out serial correlation, a plot of the residuals to check for heteroscedasticity and the variance covariance matrix to check for multicollinearity (VIF). 7. Paper Outline: The paper should follow this general outline. I. Introduction and Explanation of Theory (1/2 page) II. Analysis of Theory (1/2 page) a. Variables b. Sign of parameters c. Size of parameters d. Other aspects of theory III. Statistical Results (1 page) a. Regression Results b. Test of parameters c. Test of the model d. Test for problems with the model e. Explanation of statistical results f. Other statistical results (such as mean of variables) IV Interpreting Results (1/2 page) a. Comparing Original Results with Actual Results b. Reinterpreting the Theory with the Statistical Results c. Forecasting using results V. Concluding Statements ( 1/2 page) a. What did you learn about your theory? VI. Note: if you want to add extra graphs and charts that is ok, the minimum requirement is 3 pages. In the end you want to have a report which is easy to understand and explains what you did. The Paper is due at the final exam, you may turn it in early and I will add comments so you can rewrite the paper.
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