Business & Finance OxMetrics: Assignment on Stock Price Modeling, Forecasting, and Testing of Three Companies Based on OxMetrics

Modeling Inflation in Food Prices in Yellowknife, Northwest Territories, Canada: What is the

Impact of Oil Prices and Adverse Weather Conditions on Inflation in Food Prices?

Graphs of Key Variables

Stationarity

I conducted the Augmented Dickey Fuller (ADF) test for each of the variables (using 12 lags), to determine which variables needed to be differenced (and how many times they needed to be

differenced) in order to become stationary, before proceeding with modeling. For the food price

inflation rate and the log of the Northwest Territories unemployment rate, the conclusion of the

ADF test was to reject the null hypothesis that the data are nonstationary in favor of the alternative hypothesis that the data is stationary. The remaining variables had to be differenced in order to

become stationary.

Model

Food Price Inflation Ratet = β0 + β1Food Price Inflation Ratet-1 + β2Food Price Inflation Ratet-2 + β3 Food Price

Inflation Ratet-3 + β4log(NWT Unemployment Ratet) + β5log(NWT Unemployment Ratet-1) + β6log(NWT

Unemployment Ratet-2)+ Β7∆log(Yellowknife Oil Pricet) + β8∆log(Yellowknife Oil Pricet-1)+ β9∆log(Yellowknife

Oil Pricet-2)+ β10∆log(Yellowknife Oil Pricet-3)+ β11∆log(Yellowknife Oil Pricet-4)+ β12∆(Snowfallt) +

β13∆(Snowfallt-1)+ β14∆(Snowfallt-2)+ β15∆(Snowfallt-3) + β16∆(Snowfallt-4) + β17∆(Snowfallt-5) + β18∆(Snowfallt-

6)+ β19∆log(Canada Unemployment Ratet) + β20∆log(Canada Unemployment Ratet-1) + β21∆log(Canada

Unemployment Ratet-2)+ β22∆log(Canada Unemployment Ratet-3)+ β23∆log(Canada Unemployment Ratet-4)+ ut

Note:

NWT: Northwest Territories

Food Price Inflation Rate: The food price inflation rate in the Northwest Territories

Snowfall: Total Monthly Snowfall in the NWT

Regression Model

Pre-Liminary Findings and Conclusions

All three lags of the food price inflation rate are negative indicating that a higher inflation rate in the

price of food in preceding periods is associated with a lower food price inflation rate in the current

period. However, only the first and third lag of the variable are statistically significant. The first lag of the log of the Northwest Territories unemployment rate is positive and statistically significant.

Although the current value and the second lag of the variable are not statistically significant at any

conventional level of significance, their negative relationship with the inflation rate in food prices is

consistent with economic theory. Economic theory says that as the unemployment rate increases, the

economy begins operating below potential, putting downward pressure on price levels. The first lag of the oil price variable is statistically significant and negative. Once again, although the other lags of the variable are not statistically significant their relationship with the dependent variable is consistent with economic theory, as one would expect arise in the price of oil to be associated with arise in the

inflation rate of food prices. The current value nor any of the lags of the snowfall variable are

statistically significant at any conventional level of statistical significance, and some lags of the

variable are positive in sign while others are negative. One would expect the relationship between

snowfall and the inflation rate to be positive. The national unemployment rate is also not statistically significant, with some lags being positive in sign and others being negative. One would expect there to be downward pressure on the price level given an increase in the national unemployment rate.