Question: Using the U.S. gasoline data in Chapter 4, problem 15 given in Table 4.2 and obtained from the USGAS.ASC file, estimate the following two models:

Using the U.S. gasoline data in Chapter 4, problem 15 given in Table 4.2 and obtained from the USGAS.ASC file, estimate the following two models:

Static: log

QMG CAR

= γ1 + γ2log

RGNP POP

+ γ3log

CAR POP

+γ4log

PMG PGNP

+ t Dynamic: log

QMG CAR

= γ1 + γ2log

RGNP POP

+ γ3

CAR POP

+γ4log

PMG PGNP

+ λlog

QMG CAR

t−1

+ t

(a) Compare the implied short-run and long-run elasticities for price (PMG) andincome (RGNP).

(b) Compute the elasticities after 3, 5 and 7 years. Do these lags seem plausible?

(c) Can you apply the Durbin-Watson test for serial correlation to the dynamic version of this model? Perform Durbin’s h-test for the dynamic gasoline model. Also, the Breusch-Godfrey test for first-order serial correlation.

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