Econometrics  Consider the Role of Optimism in any Covid Recovery - Economics Assignment Help

Assignment Task:

Task:

Econometrics 
Consider the role of optimism in any Covid recovery (10% of final subject mark). 
1. Provide a full derivation of equations (1) to (2) in Henkel et al. 2019. (2 marks) Note, you do not have to understand the whole paper to do this — you can take equation (1) as the starting point. You may assume E(X)=X. 
2. Now suppose that the left hand side variable is share price growth (not inflation) and Ho refers to steady-state (long run average) share price growth in Australia of about 10% (rather than the inflation target). Further suppose that X refers to variables that impact upon share growth in Australia, like GDP growth or overseas share prices. The equation now means that share growth depends partly on what people expect as their 'default' belief (H0), partly on a fully rational calculation, and partly on the X variable. You may assume that 'optimism' about the share price means b is close to unity — that is, the 'status quo' growth will be attained. Explain how the impact of X on share price growth depends on how optimistic people are about recovery. (3 marks) 
3. What does regression analysis usually assume about the parameters (the numbers in front of variables) in a regression model? (1 mark) What does your equation (2) imply about econometric estimates when the optimism of economic agents are changing? (2 marks) 
4. Research the determinants of the share market price index on the interne. How does the logic of steps 1-3 help explain a buoyant share-market in spite of current setbacks like the lockdown? (1 mark) 
5. Come up with an econometric guess for the share market price ASX 200 at October 24 2021 using data from the beginning of 2018. See https://wwvv.google.com/search?q=asx+graph&rlz=1C1RXQR_en-GBAU965AU965&oq=asx+graph&aqs=chrom e.0.69i59j0i51219.1848j0j7&sourceid=chrome&ie=UTF- 
 

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