ETW2410: Introductory Econometrics - Krupp and Pollard - Economics Assignment Help

Assignment Task:

Task:

Part 1 [60 marks]:
1. [5 marks] Krupp and Pollard (1996) analysed the effects of antidumping filings by U.S. chemical industries on imports of various chemicals. Using monthly data from February 1978 through December 1988 gives the following:

[Equation 1.1]

The dependent variable is the log of the volume of imports of barium chloride from China. We include as explanatory variables, all in logarithmic form, an index of chemical production, chempi, the volume of gasoline production, gas and an exchange rate index, rtwex. Krupp and Pollard included three dummy variables: befile6 is equal to 1 during the six months beforef iling, affile6 indicates the six months after filing, and afdec6 denotes the six months after the favourable decision.
When the three event indicators befile6, affile6, and afdec6 are dropped from the equation above, we obtain R 2 = 0.281 and R?2 = 0.264. Should the event indicators be included in the model and why? If you need to run a test, use 10% level of significance.
2. [15 marks] Use the data in FERTIL3 for this exercise. The general fertility rate (gfr) is the number of children born to every 1,000 women of childbearing age. For the years 1913 through
1982, a model was constructed to explain gfr in terms of the average real dollar value of the personal tax exemption (pe) and two binary variables. The variable ww2 takes on the value one (1) during the years 1941 through 1945, when the United States was involved in World War II. The variable pill is equal to one (1) from 1963 onward, when the birth control pill was made available for contraception.

[Equation 2.1]

(i) [5 marks] Add pet−1
, pet−2
, pet−3
, and pet−4

into equation 2.1. Test for joint significance of these lags.
(ii) [10 marks] Find the estimated long-run impact of pe and its standard error in the model from part (i). Then, calculate the confidence interval of the estimated long-run impact. Hint: The long-run impact of pe is the sum of all the coefficients of pe and its lags. In order to obtain the standard error, you need to do a substitution and reparameterization of the equation in (i).

3. [10 marks] A strict form of the Efficient Market Hypothesis (EMH) states that information observable to the market prior to week t should not help to predict the return during week t. We estimated the simple AR(1) model:

[Equation 3.1]

(i) [4 marks] The output for an auxiliary regression of a test is presented below. What is the name of this test, for which condition does it test and what does the results indicate?

[Equation 3.2]

(ii) [6 marks] The heteroskedasticity-robust standard errors (in[...]) are computed along with the usual standard errors:

[Equation 3.3]

What does the heteroskedasticity-robust standard errors and t-statistic do to the significance of returnt−1? Based on this, comment on the validity of the EMH.

4. [30 marks] Use the data in APPROVAL to answer the following questions. The data set consists of 71 months of data during the presidency of George W. Bush. In addition to economic variables and binary indicators of various events, it includes an approval rate, approve, collected by Gallup. Descriptions of the variables can be found in the data workfile.
(i) [4 marks] Generate the correlograms for the variables approve and lrgasprice. Should we worry about unit roots?
(ii) [3 marks] Estimate the following model: [Equation 4.1] where the first two variables are in logarithmic form and report the estimates in the usual way.
(iii) [8 marks] Interpret the coefficients in the estimates from part (ii). Comment on the signs and sizes of the effects, as well as statistical significance.

(iv) [6 marks] Add the binary variables sep11 and iraqinvade to the equation from part (ii). [Equation 4.2] Interpret the coefficients on the dummy variables. Are they statistically significant?
(v) [3 marks] Does adding the dummy variables in part (iv) change the other estimates much? Are any of the coefficients in part (iv) hard to rationalize?
(vi) [6 marks] The S&P 500 index is a common indicator of stock market performance. Add lsp500 to the regression in part (iv). Controlling for other factors, does the stock market have an important effect on the presidential approval rating?

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