logo Use SA10RAM to get 10%* Discount.
Order Now logo

Ask This Question To Be Solved By Our ExpertsGet A+ Grade Solution Guaranteed

expert
Isaac TorressCriminology
(5/5)

710 Answers

Hire Me
expert
Yusuf PathanStatistics
(5/5)

551 Answers

Hire Me
expert
Stefan WoodComputer science
(5/5)

675 Answers

Hire Me
expert
George DavinComputer science
(5/5)

788 Answers

Hire Me
Econometrics
(5/5)

You are given the data set “macro_variables”. The file contains the following variables

INSTRUCTIONS TO CANDIDATES
ANSWER ALL QUESTIONS

Question 1 (25 marks)

You are given the data set “macro_variables”. The file contains the following variables:

 

i) dcredit: unexpected change in consumer credit

ii) dinflation: unexpected change in the inflation rate

iii) dmoney: unexpected change in money supply

iv) dprod:unexpected change in industrial production 

v) dpsread: unexpected change in credit spreads

vi) ermsoft: risk premium over Microsoft stock

vii) ersandp: risk premium over market portfolio (SandP)

viii) rterm:unexpected change in the term structure

 

You are to answer the following questions:

 

a) Run a Multiple Linear Regression Model with the variable “ermsoft” as the dependent variable and all other variables as the independent variables. Show the EViews output and interpret ALL the variables. (3 marks)

 

b) Which variables are significant and which variables are insignificant? Why? (3 marks)

 

c) Is the entire model significant? Why? (3 marks)

 

d) Which tests are being used in c) and d), respectively? (3 marks)

 

e) What is Heteroscedasticity? (3 marks)

 

f) Check for Heteroscedasticity. Show output! (3 marks)

 

g) Run a model with Robust Standard Errors. Show output! (4 marks)

 

h) Why is step g) important? (3 marks) 

Question 2 (20 marks)

 

Using the same dataset, consider the following:

 

The structural equations are as follows:

〖inflation〗_t=α_0+α_1 〖returns〗_t+α_2 〖dcredit〗_t+α_3 〖dprod〗_t+α_4 〖dmoney〗_t+u_1t

〖returns〗_t=β_0+β_1 〖dprod〗_t+β_2 〖dspread〗_t+β_3 〖inflation〗_t+β_4 〖rterm〗_t+u_2t

returns are stock returns (rsandp).

 

It is evident that there is feedback between the two equations since the inflation variable appears in the stock returns equation and vice versa.

 

Therefore, since the above equations suffer from simultaneity the reduced-form equations are:

 

inflation=f(constant,dprod,dspread,rterm,dcredit,dmoney)

returns=f(constant,dprod,dspread,rterm,dcredit,dmoney)

 

a) Use Two-Stage Least Squares to estimate each of the reduced-form equations. Show output! (10 marks)

 

b) Conduct the Hausman Test for the endogeneity of Stock Returns and Inflation. Show output! (10 marks)

 

(5/5)
Attachments:

Related Questions

. The fundamental operations of create, read, update, and delete (CRUD) in either Python or Java

CS 340 Milestone One Guidelines and Rubric  Overview: For this assignment, you will implement the fundamental operations of create, read, update,

. Develop a program to emulate a purchase transaction at a retail store. This  program will have two classes, a LineItem class and a Transaction class

Retail Transaction Programming Project  Project Requirements:  Develop a program to emulate a purchase transaction at a retail store. This

. The following program contains five errors. Identify the errors and fix them

7COM1028   Secure Systems Programming   Referral Coursework: Secure

. Accepts the following from a user: Item Name Item Quantity Item Price Allows the user to create a file to store the sales receipt contents

Create a GUI program that:Accepts the following from a user:Item NameItem QuantityItem PriceAllows the user to create a file to store the sales receip

. The final project will encompass developing a web service using a software stack and implementing an industry-standard interface. Regardless of whether you choose to pursue application development goals as a pure developer or as a software engineer

CS 340 Final Project Guidelines and Rubric  Overview The final project will encompass developing a web service using a software stack and impleme

Get Free Quote!

301 Experts Online