Econometrics
Homework No. 1
Q. 1 Table 1.2 gives data on the Consumer Price Index (CPI) for seven industrialized countries
with 1982–1984 = 100 as the base of the index.
a. From the given data, compute the inflation rate for each country.
b. Plot the inflation rate for each country against time (i.e., use the horizontal axis for time and
the vertical axis for the inflation rate.)
c. What broad conclusions can you draw about the inflation experience in the seven countries?
d. Which country‟s inflation rate seems to be most variable? Can you offer any explanation?
e. If you find that the six countries‟ inflation rates move in the same direction as the U.S.
inflation rate, would that suggest that U.S. inflation “causes” inflation in the other countries?
Why or why not?
TABLE 1.2 CPI IN SEVEN INDUSTRIAL COUNTRIES, 1973–1997 (1982−1984 = 100)
Year Canada France Germany Italy Japan U.K. U.S.
1973 40.8 34.6 62.8 20.6 47.9 27.9 44.4
1974 45.2 39.3 67.1 24.6 59 32.3 49.3
1975 50.1 43.9 71.1 28.8 65.9 40.2 53.8
1976 53.9 48.1 74.2 33.6 72.2 46.8 56.9
1977 58.1 52.7 76.9 40.1 78.1 54.2 60.6
1978 63.3 57.5 79 45.1 81.4 58.7 65.2
1979 69.2 63.6 82.2 52.1 84.4 66.6 72.6
1980 76.1 72.3 86.7 63.2 90.9 78.5 82.4
1981 85.6 81.9 92.2 75.4 95.3 87.9 90.9
1982 94.9 91.7 97.1 87.7 98.1 95.4 96.5
1983 100.4 100.4 100.3 100.8 99.8 99.8 99.6
1984 104.7 108.1 102.7 111.5 102.1 104.8 103.9
1985 109 114.4 104.8 121.1 104.1 111.1 107.6
1986 113.5 117.3 104.7 128.5 104.8 114.9 109.6
1987 118.4 121.1 104.9 134.4 104.8 119.7 113.6
1988 123.2 124.4 106.3 141.1 105.6 125.6 118.3
1989 129.3 128.7 109.2 150.4 108.1 135.3 124
1990 135.5 133 112.2 159.6 111.4 148.2 130.7
1991 143.1 137.2 116.3 169.8 115 156.9 136.2
1992 145.3 140.5 122.1 178.8 116.9 162.7 140.3
1993 147.9 143.5 127.6 186.4 118.4 165.3 144.5
1994 148.2 145.8 131.1 193.7 119.3 169.4 148.2
1995 151.4 148.4 133.5 204.1 119.1 175.1 152.4
1996 153.8 151.4 135.5 212 119.3 179.4 156.9
1997 156.3 153.2 137.8 215.7 121.3 185 160.5
Q. 2 Table 1.3 gives the foreign exchange rates for seven industrialized countries for years
1977–1998. Except for the United Kingdom, the exchange rate is defined as the units of foreign
currency for one U.S. dollar; for the United Kingdom, it is defined as the number of U.S. dollars
for one U.K. pound.
a. Plot these exchange rates against time and comment on the general behavior of the exchange
rates over the given time period.
b. The dollar is said to appreciate if it can buy more units of a foreign currency. Contrarily, it is
said to depreciate if it buys fewer units of a foreign currency. Over the time period 1977–1998,
what has been the general behavior of the U.S. dollar? Incidentally, look up any textbook on
macroeconomics or international economics to find out what factors determine the appreciation
or depreciation of a currency.
Year Canada France Germany Japan Sweden Switzerland U.K.
1977 1.0633 4.9161 2.3236 268.62 4.4802 2.4065 1.7449
1978 1.1405 4.5091 2.0097 210.39 4.5207 1.7907 1.9184
1979 1.1713 4.2567 1.8343 219.02 4.2893 1.6644 2.1224
1980 1.1693 4.2251 1.8175 226.63 4.231 1.6772 2.3246
1981 1.199 5.4397 2.2632 220.63 5.066 1.9675 2.0243
1982 1.2344 6.5794 2.4281 249.06 6.2839 2.0327 1.748
1983 1.2325 7.6204 2.5539 237.55 7.6718 2.1007 1.5159
1984 1.2952 8.7356 2.8455 237.46 8.2708 2.35 1.3368
1985 1.3659 8.98 2.942 238.47 8.6032 2.4552 1.2974
1986 1.3896 6.9257 2.1705 168.35 7.1273 1.7979 1.4677
1987 1.3259 6.0122 1.7981 144.6 6.3469 1.4918 1.6398
1988 1.2306 5.9595 1.757 128.17 6.137 1.4643 1.7813
1989 1.1842 6.3802 1.8808 138.07 6.4559 1.6369 1.6382
1990 1.1668 5.4467 1.6166 145 5.9231 1.3901 1.7841
1991 1.146 5.6468 1.661 134.59 6.0521 1.4356 1.7674
1992 1.2085 5.2935 1.5618 126.78 5.8258 1.4064 1.7663
1993 1.2902 5.6669 1.6545 111.08 7.7956 1.4781 1.5016
1994 1.3664 5.5459 1.6216 102.18 7.7161 1.3667 1.5319
1995 1.3725 4.9864 1.4321 93.96 7.1406 1.1812 1.5785
1996 1.3638 5.1158 1.5049 108.78 6.7082 1.2361 1.5607
1997 1.3849 5.8393 1.7348 121.06 7.6446 1.4514 1.6376
1998 1.4836 5.8995 1.7597 130.99 7.9522 1.4506 1.6573
Q. 3 The data presented in Table 1.5 was published in the March 1, 1984 issue of the Wall Street
Journal. It relates to the advertising budget (in millions of dollars) of 21 firms for 1983 and
millions of impressions retained per week by the viewers of the products of these firms. The data
are based on a survey of 4000 adults in which users of the products were asked to cite a
commercial they had seen for the product category in the past week.
a. Plot impressions on the vertical axis and advertising expenditure on the horizontal axis.
b. What can you say about the nature of the relationship between the two variables?
c. Looking at your graph, do you think it pays to advertise?
Impressions Expenditures
Firm millions millions of 1983 dollars
1. Miller Lite 32.1 50.1
2. Pepsi 99.6 74.1
3. Stroh‟s 11.7 19.3
4. Fed‟l Express 21.9 22.9
5. Burger King 60.8 82.4
6. Coca Cola 78.6 40.1
7. McDonald‟s 92.4 185.9
8. MCl 50.7 26.9
9. Diet Cola 21.4 20.4
10. Ford 40.1 166.2
11. Levi‟s 40.8 27
12. Bud Lite 10.4 45.6
13. ATT/Bell 88.9 154.9
14. Calvin Klein 12 5
15. Wendy‟s 29.2 49.7
16. Polaroid 38 26.9
17. Shasta 10 5.7
18. Meow Mix 12.3 7.6
19. Oscar Meyer 23.4 9.2
20. Crest 71.1 32.4
21. Kibbles „N Bits 4.4 6.1