For the following empirical exercises, hand in both a printout of the results and your evaluation of findings from the results.

Do the following analysis with the TAYLOR dataset (available on fmrisc and Sleek4; see below). The dataset contains quarterly data from 1953 through 1975 on four economic variables: gnpp (potential GNP), m1 (narrow money supply), pgnp (implicit deflator for real GNP), and gnp (real GNP). The time variable has already been set for these data (q.v. tsset).

1. Calculate and report the growth rates of GNP during each of these three regimes. Test the hypotheses: (1) all three are identical; (2) Democratic administrations bring about higher GNP growth than Republican administrations. (Hint: you may find the 'tin' function useful).
2. Do the same comparison, and test the same hypotheses, for the rate of price inflation, as measured by the rate of change in GNPDEF.
3. Fit an equation relating the growth rate of GNP to the growth rate of the real money supply, lags 1 through 8, with a constant term. Test whether a form of this equation containing only 4 lags would be adequate.
4. Reestimate the 4-lag form of this equation with robust standard errors. Use the Durbin-Watson test (dwstat), the Breusch-Godfrey test with 4 lags (available from SSC-IDEAS as 'bgtest'; already installed on fmrisc), and the Box-Pierce Q test (wntestq) to evaluate whether the errors of this equation possess significant autocorrelation.
5. Estimate an AR(1) model for the log of the 'GNP gap' (the ratio of actual GNP to potential GNP). Use the Durbin 'h' test (available from SSC-IDEAS as 'durbinh'; already installed on fmrisc) to determine whether the errors from this model possess significant autocorrelation. Repeat the exercise using an AR(2) model and comment on the results.

 

 

6. Fit an equation relating the growth rate of GNP to the growth rate of the real money supply, once lagged, and the growth rate of the GNP gap, once lagged. Are both of these significant explanatory factors?
7. Reestimate the equation for each administration. Comment on the importance of money growth and GNP gap growth during each period.

You cannot write in either of those directories; you may save the file, with any changes, to your own directory on either system (i.e. into /u/username on UNIX, or Sleek4:[PersonalStorage]:Yourname-EC on Sleek).