Question

Based on the EViews result in Table 1, answer the following questions.

Table 1: Estimated Regression Result

Dependent Variable: LGDP
Method: Least Squares
Sample: 2000Q1 2012Q4
Included observations: 52
Variable	Coefficient	Std. Error	t-Statistic	Prob.
LM2	0.796910	0.032383	24.60868	0.0000
LREER	-0.060125	0.065220	-0.921892	0.3613
LSDR	0.051745	0.074618	0.693465	0.4914
LTBR	0.029174	0.007715	3.781436	0.0004
C	2.795406	0.427355	6.541183	0.0000
R-squared	0.986591	Mean dependent var		13.28409
Adjusted R-squared	0.985450	S.D. dependent var		0.429315
S.E. of regression	0.051786	Akaike info criterion		-2.992187
Sum squared resid	0.126044	Schwarz criterion		-2.804568
Log likelihood	82.79686	Hannan-Quinn criter.		-2.920258
F-statistic	864.5234	Durbin-Watson stat		0.777639
Prob(F-statistic)	0.000000

1. Write down the estimated result. [5 marks]

2. Examine the parameters of interest from the perspective of: (hint: used p-value)

3. What is your conclusion about the relationship between parameter of interests based on the empirical results?

4. Based on the empirical results in Table 1, what are the possible diagnostic problems that you observe?

Answer 1

a.

The estimated result is:

LGDP = 2.795406 + 0.796910*LM2 - 0.060125*LREER + 0.051745*LSDR + 0.029174*LTBR + e

b.

LTBR and LM2 are statistically significant at a 5% level of significance as the actual p-value of the respective t-statistic is less than the critical p-value of 0.05

LREER and LSDR are statistically not significant at a 5% level of significance as the actual p-value of the respective t-statistic is greater than the critical p-value of 0.05

c.

LM2 = log of money supply M2

LSDR = log of Special Drawing Rights (SDR)

LREER = log of Real Effective Exchange Rate

LTBR = log of Treasury-bill rate

The explanatory variables LTBR and LM2 are statistically significant variables in the explanation of variation in the dependent variable LGDP, whereas, LREER and LSDR are not.

Everything else remaining constant, 1% point increase in the M2 money supply would lead to 0.796910% point increase in the GDP

Everything else remaining constant, a 1% point increase in the TBR would lead to 0.029174% point increase in the GDP

d.

The Adjusted R-square is very high, which is 98.545%, but 2 of the 4 coefficients are statistically not significant in explaining the variations in the dependent variable GDP. The OLS regression model is likely to suffer from the problem of multi-collinearity.

The time-series data is used to build the regression model. There is likely a chance, the regression model suffers from the problem of serial-correlation.