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- Referencing Styles: Open
- Words: 1750
- Course Code: ECON8040
- Course Title: applied econometrics
- University: Macquarie University
- Country: AU
At the beginning of your report, briefly explain how you prepared your data files, especially demonstrating their originality.
Answer the following questions using the 188 quarterly observations (Q3/1972 ‒ Q2/2019) on
Q1. Visual Checking Plot each of the six variables against time, and obtain ACF and PACF plots. Comment on the plots, ACFs and PACFs, with regard to the trend and stationarity/non‐stationarity of the series.
Q2. Order of Integration Determines the orders of integration for the variables using the Augmented Dickey‐Fuller (ADF) test procedure at 5%. For the tests, set the maximum lag order to 8 and select “test down” from it using the AIC to determine the optimum number of lags. Include constant, and constant and trend for the tests as necessary.
• Make sure you test for I(1) vs I(0) as well as I(2) vs I(1),
Q3 Engle-Granger cointegration Test for cointegration test among the six variables LTHPI, Rate, LRGDIPC, LUN, LCPI and LHSTOCKPC using the Engle-Granger test.
Q4 Economic Interpretation of a long-run relationship
• Explain why you would expect a long-run relationship between those six variables.
• Interpret the estimated coefficients of the explanatory variable.
• Are the signs and magnitudes of the estimated coefficients according to intuition?
• Comment on the cointegration relationship in light of the economic events that happened during the sample period, paying attention to the signs of the coefficients.