Plot the levels of gdp of your two chosen countries

Reference no: EM131437843

EMPIRICAL EXERCISE

INSTRUCTIONS: This exercise is to help deepen your understanding of the concepts and tools you learnt during the course. It will amount to 30% of your continuous assessment mark. The mark will be awarded on the basis of the spirit in which you have attempted the exercises. It is not necessary that your answers be absolutely correct but that you have demonstrated a genuine effort in answering the assigned empirical exercises. You are expected to analyse data EXCEL software of your choice and write up an empirical report explaining your work and the interpretation of your results.

The empirical project should be at least 10 pages (not including the title page, bibliography and up to two pages of tables and/or graphs). The project must be word processed and double spaced using 12 point font (use 10 point for tables) and margins of at least an inch at top/bottom/left/right. Projects which violate these constraints will be penalized by 5 points (out of the 30 in total!).

EMPIRICAL PROJECT QUESTION:

Visit the UNCTAD Statistics page

https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx

and download annual GDP data from 1970 to 2014 for any two of the following countries: UK and France; Australia and Canada. Perform the follow tasks on your chosen pair of countries.

A. Time series properties of GDP series

A1. Plot the levels of GDP of your two chosen countries against time and explain whether each of the time series is stationary or not.

A2. Plot the sample autocorrelation function of the time series and comment on them.

B. Testing for Unit Root in Time Series

B1. Following an appropriate model selection procedure, conduct Dickey Fuller (DF) and/or augmented Dickey-Fuller (ADF) t-type tests for the time series of your chosen countries(x and y), and explain your findings. You should also use the Dickey-Fuller 1, 2, and 3 F- type tests to support your findings. (N. B. You need to place in the appendix the actual regression model(s) which was (were) estimated to obtain your test statistics.)

B2. Discuss the main limitations of these unit root test procedures.

C. Estimating a long-run cointegration equation and testing for cointegration

C1. Using the full sample of observations estimate by OLS the cointegration regression equation of y on a constant and x.

C2. From the results of your unit root tests in section B is there any possibility of finding a cointegration relationship between country x and y?

C3. Using the Engel-Granger technique test for cointegration between country x and y. Explain your findings.

C4. Explain what is meant by "spurious regression" and discuss its main consequences.

D. Estimating a dynamic error-correction model using the second step in the Engle-Granger two-step procedure

D1. Using the largest sample of observations possible, set up and then estimate by OLS a general dynamic model in error correction form, as suggested by the Engle-Granger two-step procedure. Call the residuals from C1 "ECMt" (t=1,..,T) and use these as estimates of the disequilibrium errors (the error correction term). Include five lags of Y_t and X_t in the initial, unrestricted dynamic model, which should therefore be of the form:

In all subsequent regressions, keep the same sample period as in step D1.

D2. Comment on the meaning, interpretation, plausibility and statistical significance of the parameter or its OLS estimate.

D3. Carry out a set of misspecification tests to assess the statistical adequacy of the final, restricted model and discuss the results.

D4. Discuss the main advantages and disadvantages of the Engle-Granger two-step procedure for testing for co-integration. Outline an alternative procedure that you might use to test for the number of cointegrating relationships among a set of time series.

Attachment:- Assignment File.rar

Reference no: EM131437843

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len1437843

3/23/2017 6:12:22 AM

When conducting a formal hypothesis test, you must explain the null hypothesis that is being examined and the alternative hypothesis. Presenting such results in tables may be very useful and aid your presentation. All work is to be done using your chosen software (Excel, Eview, Gretl or your preferred package). Your assessment essay must be submitted in word-processed form. Hand-written essays will not be accepted. Use 12’ Times New Roman throughout for text and 10’ for tables. Keep the total length of the essay to 10 pages including tables and figures.

3/23/2017 6:12:17 AM

Use Excel as Software. Meet all requirements in file. Marks will be allocated on the basis of clear presentation of results and lucid explanation of these obtained results. You should note that a very high weighting will be given in the allocation of marks to evidence that you: understand the techniques employed; can justify the techniques you have chosen and appraise their strengths and limitations (where appropriate); can communicate results clearly and concisely to the reader. Only final results should be presented in the main body of the text. Intermediate results and steps (along with the listing of the generated time series models) should be placed in appendices and properly referenced in the main body of the text.

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