ECO 342 WEEK 4 ECONOMETRICS

Assignment Problems - Hourly Earnings and Unemployment Rate

Complete Problem 5.29 of Chapter 5.

5.29. Refer to Example 5.6 in the chapter. It was shown that the percentage change in the index of hourly earnings and the unemployment rate from 1958-1969 followed the traditional Phillips curve model. An updated version of the data, from 1965-2007, can be found in Table 5-19 on the textbook- Web site. 
a.	Create a scattergram using the percentage change in hourly earnings as the Y variable and the unemployment rate as the X variable.  Does the graph appear linear?   
b.	Now create a scattergram as above, but use 1/X as the independent variable. Does this seem better than the graph in part (a)? 
c.	Fit Eq. (5.29) to the new data. Does this model seem to fit well? Also create a regular linear (LIV) model as in Eq. (5.30). Which model is better? Why? 
Table 5-19							
YEAR-TO-YEAR PERCENTAGE CHANGE IN THE INDEX OF HOURLY EARNINGS (Y)
AND THE UNEMPLOYMENT RATE (%) (X), UNITED STATES, 1965-2007	
								
								
	Y	X						
Year	% change	unemployment %						
1965	4.2	4.5						
1966	3.5	3.8						
1967	2.8	3.8						
1968	5.4	3.6						
1969	6.1	3.5						
1970	4.2	4.9						
1971	6.2	5.9						
1972	7.7	5.6						
1973	6.2	4.9						
1974	5.6	5.6						
1975	5.6	8.5						
1976	7.3	7.7						
1977	6.9	7.1						
1978	7.8	6.1						
1979	7.2	5.8						
1980	6.8	7.1						
1981	8.6	7.6						
1982	4.3	9.7						
1983	4.8	9.6						
1984	4.1	7.5						
1985	2.4	7.2						
1986	1.6	7.0						
1987	2.4	6.2						
1988	3.0	5.5						
1989	3.5	5.3						
1990	3.4	5.6						
1991	2.5	6.8						
1992	2.7	7.5						
1993	2.9	6.9						
1994	3.3	6.1						
1995	2.3	5.6						
1996	3.3	5.4						
1997	4.5	4.9						
1998	3.9	4.5						
1999	3.3	4.2						
2000	3.9	4.0						
2001	2.7	4.7						
2002	2.6	5.8						
2003	2.2	6.0						
2004	2.1	5.5						
2005	2.9	5.1						
2006	4.3	4.6						
2007	3.8	4.6						

Reference

Gujarati, D., & Porter, D. (2010). Essentials of Econometrics (4th ed.). Boston: McGraw-Hill Irwin. ISBN: 9780073375847