EC 203 Introduction to Empirical Economics

							     EC 203 Introduction to Empirical Economics

                    CLASS ASSIGNMENT


                    Answer ALL questions.

The marks allocated to each question and different parts of
each question are indicated in brackets at the end each part of
each question.

The assignment is due by 12 noon on Monday 12th
December. Late submissions will incur a penalty of 1
percentage point per working day beyond this date.

You should submit your assignment stapled to the inside of a
green essay cover (available at the 2nd year mail drop on the 4th
floor of the SWD building). Your name should not appear
anywhere but under the folded down corner of the green cover.

In addition to your written work, you should submit a floppy disk
or CD containing your paper, your results and calculations
(appropriately labelled so that we can find information for each
question if we need to). You should paste key results (charts,
tables etc) into your report, in the text and/or in appendices.
The electronic information is a back-up for us.

The assignment should be submitted via the 2nd year drop-off
box (located at the entrance to the Department of Economics
on the 4th Floor of the Sir William Duncan Building). Please
note that the drop off box is secure and is kept locked at
all times.
                 Karen Turner, October 2005

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                               PART 1

Q1. UK regional GDP

   (a)   Find and report GDP and GDP per capita data at current
         basic prices for the following UK regions for the period 1995
         to 2001:
         - North East
         - North West
         - Yorkshire and the Humber
         - East Midlands
         - West Midlands
         - East of England
         - London
         - South East
         - South West
         - Wales
         - Scotland
         - Northern Ireland
                                                              (15 marks)

   Clue – you should search for the UK Regional Accounts on the
   National Statistics web-site. It may be found within a document so
   that you have to enter the data in your spreadsheet. Note that credit
   will be given for appropriate citation and sourcing of your source(s).

   (b)   Use the UK GDP deflator to convert these data into constant,
         2000, prices

Clue – you downloaded this in Lab 1 but may have to rebase it.

                                                             (15 marks)

   (c)   Calculate and comment on the relative GDP growth
         performance across the regions. Use charts where
         appropriate.
                                                 (20 marks)
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   (d)    Within each time period, create an index for both GDP and
          GDP per capita (constant prices), where Scotland is the base
          case (i.e. with value 1 or 100) and comment on Scotland’s
          performance relative to the other UK regions over the period
          1995-2001. Use charts where appropriate.
                                                           (30 marks)

(Total marks for Part 1, Q1 – 80)



Q2. Unemployment in the EU

   (a)    Find and report data on what the unemployment rate was in
          the following countries in 2003:
        France
        Germany
        Italy
        UK
                                                           (10 marks)

   (b)    Comment on your data source(s), highlighting whether your
          results can be taken to be comparable across countries (i.e.
          compatible accounting conventions).
                                                         (10 marks)

(Total marks for Part 1, Q2 – 20)
(Total marks for Part 1 – 100)




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                                 PART 2

On the 2nd year web-site you should download the file named
‘EC203 Intro to Empirical Economics assignment data.xls’
This file contains quarterly time series data on 7 variables relating to
household income and expenditure in the small economy of Freedonia
over the 30-year period 1971Q1 to 2000Q4.

The first row in this file gives a list of variable names. A key is provided
in columns J and K describing each of the 7 variables, explaining
whether the series are constant (real) or current (nominal) prices, and
whether they are seasonally adjusted or unadjusted.


                               Questions
Q1. Describing your data

Using appropriate data transformation, graphs and descriptive
statistics, discuss the pattern and evolution of personal income and
consumption expenditure in Freedonia over the 30-year period that the
data describe.

You should include (but not be limited to) discussion of the following
questions
   Is there a strong seasonal pattern in either income or
      expenditure? Does this vary over time? Why might this be the
      case
   Has the average price level grown constantly over the time
      period?
   Has consumption demand grown constantly over the time
      period?
   Can you estimate the average marginal propensity to consume?
      Is the sample widely dispersed or does the deviation from this
      average seem quite low?
(Q1 - 75 marks)

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Q2. Seasonality

Using the income and expenditure data for Freedonia as an example,
briefly discuss the circumstances it may be useful to have access to
data that are not seasonally adjusted. Would it be preferable to have
access to unadjusted data in constant price form?

(Q2 – 10 marks)

Q3. Constant vs current price data

Using the income and expenditure data for Freedonia as an example,
explain the concepts of constant and current price data and the
benefits of the former for time series analysis.

(Q3 – 10 marks)

Q4. Correlation analysis

Carry out a correlation analysis of personal income and expenditure in
Freedonia (on the constant price, seasonally adjusted series). This
should involve

    Calculating and interpreting the mean, standard deviation,
     minimum and maximum of income and expenditure
    Constructing a scatter plot and calculating the sample correlation
     coefficient (rxy)
    Interpreting your results and considering the nature of any
     correlation between the two variables.

(Q4 - 25 marks)

Q5. Regression analysis

Run a regression of personal income on consumption expenditure,
including an intercept (constant) in your model. That is estimate the



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following model. Note that u is an unobserved disturbance term
believed to be   ut  N (0, 2) .

                    CRAt    YRAt  ut

   (a)   Derive 99% and 95% confidence interval estimates for .

                                                             (20 marks)

   (b)   Test the null hypothesis H0: =0 against the alternative
         hypothesis Ha: >0 at the 1%, 5% and 10% levels and
         comment on your finding.

                                                             (20 marks)

   (c)   What does R2 tell us about the fit of this model?

                                                             (10 marks)

   (d)   Compare your findings with the results of your correlation
         analysis in Q4. Has carrying out the regression analysis given
         more useful results?

                                                             (20 marks)

   (e)   Assess the approach of applying the single variable linear
         regression model and OLS technique to this problem.

                                                             (10 marks)

(Q5 – 80 marks)

(Total marks for Part 2 – 200)

                  (Total marks for assignment – 300)



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