Refer to the following table, which gives data on personal savings (Y) and personal disposable income (X)

Question:

Refer to the following table, which gives data on personal savings (Y) and personal disposable income (X) for the period 1970€“2005. Now consider the following models:

Model A: Yαι+αχ + a X_1+u Model B: Υ- β+ β, X + βY +u,


Year Savings Income 1970 69.5 735.7 1971 80.6 801.8 1972 869.1 77.2 102.7 113.6 1973 978.3 1,071.6 1,187.4 1,302.5 1,435


How would you choose between these two models? State clearly the test procedure(s) you use and show all the calculations. Suppose someone contends that the interest rate variable belongs in the savings function. How would you test this? Collect data on the 3-month treasury bill rate as a proxy for the interest and demonstrate your answer.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Basic Econometrics

ISBN: 978-0073375779

5th edition

Authors: Damodar N. Gujrati, Dawn C. Porter

Question Posted: