Economic statistic lab

Assignment.

Address the serial correlation from Lab 2. In order to do that, let’s try to model the time series issue. Estimate the following three regressions, and choose the best one.

A) TOTCOMP=f(FRINPERC, time)

B) TOTCOMP=f(FRINPERC, lagged TOTCOMP)

C) TOTCOMP=f(FRINPERC, time, lagged TOTCOMP)

The “time” variable is already in the data set, but you will have to generate the lagged TOTCOMP variable. In order to do this, select and copy the TOTCOMP data column, then paste it into an empty column one row lower the other data – this will give you the TOTCOMP data for the previous period lined up with the other data.

When you run a regression with the lagged data, you will lose one observation (because there is no lagged value for the first observation). Make sure to select data rows that have values for all the relevant variables when running your regression.

2. Use the Z Data Set posted on Blackboard. Estimate this regression: Y = f(X1, X2, X3). Analyze the results in the usual way, including checking for the three problems we discussed. Revise the model (drop one or more X variable, transform the data, etc.) In order to develop a better model than the initial one. Explain in detail how you arrived at the new model.