The consumer price index (CPI) is a measure of the average change in prices over time in a fixed market basket of goods and services typically purchased by consumers. One of the items in this market basket that affects the CPI is the price of oil and its derivatives. Of course, prices are affected by inflation, and so the file titled Consumer contains the price of the derivatives of oil and the CPI adjusted to 2005 levels for a recent 15-month period.
a. Use backward elimination stepwise regression to determine which combination of the oil derivative prices drive the CPI. If you encounter difficulties in completing this task, explain what caused the difficulties.
b. Eliminate the source of the difficulties in part a by producing a correlation matrix to determine where the difficulty lies.
c. Delete one of the variables indicated in part b and complete the instructions in part a.