What is temporary and permanent impact of increase in prices

Reference no: EM131114184

1. You collect unadjusted, quarterly data on nominal wages, unemployment, and prices in the United States from 1940 through 2011 from the United States Bureau of Labor and Statistics. Wages are the median wage in the United States in each quarter, the unemployment rate is reported for each quarter, and price is an index based on the Consumer Price Index in each quarter.

A. Can we use the data as is to run a reliable regression of the unemployment rate on wages? Why or why not, and is there any way we could transform the data into something more reliable?

B. You next decide to further examine the relationship between wages and prices over this time period. You run a regression of ln(wage) on price and lagged price and obtain the following results (standard errors in parentheses):

ln(wage)_it = 0.576 + 0.041*price it - 0.0224*price_it-1 + 0.016*price_it-2 - 0.029*price_it-3 + µ_it
(0.013) (0.01) (0.008) (0.019) (0.01)

N = 284, R² = 0.958

What is the temporary and permanent impact of an increase in prices on wages based on these results? How would we test if the permanent impact of a price change is statistically significant?

Reference no: EM131114184

Questions Cloud

Calculate optimal order quantity : The demand for an item is 8000 units per annum and the unit cost is Re.1/-. Inventory carrying charges of 20% of average inventory cost and ordering cost is Rs. 12.50 per order. Calculate optimal order quantity, optimal order time, optimal invento..

Sketch the output waveform for the synchronous counter : Consider a series-carry synchronous counter with T flip-flops shown in Figure P6.2.29 in which the AND gates carry forward the transitions of the flip-flops, thereby improving the speed. Sketch the output waveform for the synchronous counter.

How social security different from public assistance program : With the deductions from every paycheck to fund this future benefit, Americans looked forward to a comfortable retirement based on the assumption that these funds were being invested wisely. Is this a factual assumption, or is it another myth of t..

Question regarding the outstanding debt issues : Suppose the company's stock has a beta of 1.1. The risk-free rate is 3.9 percent, and the market risk premium is 7.8 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make ..

What is temporary and permanent impact of increase in prices : What is the temporary and permanent impact of an increase in prices on wages based on these results? How would we test if the permanent impact of a price change is statistically significant?

What your plans are for using the substance : How this experience is similar to someone addicted to alcohol/drugs and having to stop using his or her drug of choice

Holding tax on transfer of dividends : The income tax rate in India is 48% but there are no with holding tax on transfer of dividends. Dividends received by Merck International in the United states would be subject to 50% tax.

How good are your listening skills : How good are your listening skills? Take this assessment and find out what areas you can use improvement and report to the class. Do you see a relationship between the areas of improvement in the communication assessment and the listening areas of..

Degree of combined leverage : Calculate the degree of operating leverage (DOL), degree of financial leverage (DFL), degree of combined leverage (DCL), for the following firms:

User Account

All Pages