Explore BrainMass

Explore BrainMass

    result sheet

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Can someone please explain how to read the result-sheet?
    The error correction term EqCM08q4(t) = cpeb (t-1)- 0.85y (t-1) - 0.15w (t) + 0.7RRa (t-1), Seasonal, Seasonal_1 and Seasonal_2 are dummy variables included to pick up changes in the quarterly distribution of income from 2002 and I'm disregarding the DKjstep02 dummies.

    © BrainMass Inc. brainmass.com April 1, 2020, 5:02 pm ad1c9bdddf


    Solution Preview

    What you have in the result sheet is the results of a standard OLS regression that was used to estimate consumption as a function of output and wage. In a very broad sense this is what we have

    Consumption = Function of Output (Income) and Wage.

    This can be further refined as

    Consumption = X*Output + Y*Wage + Error Terms

    When we try to estimate a regression like this at times it becomes easier when we have an intercept term included. This can be seen from the attached image. What we have is there is all the blue points are the data. We are given some variable on the X-axis and we have to estimate the value on the vertical axis. The red line in the graph is the estimate line. As you can see that when X is zero we have a positive intercept. The red line will intersect the vertical axis at a positive point. To capture this idea we have to include a constant term. This changes the regression equation to

    Consumption = Constant + X*Output + Y*Wage + Error Terms

    When we estimate these equations in practice we try to estimate the impact of income in other periods and other error corrections. This may include taking account of seasonality, error correction, etc. When we do that the estimate equation becomes

    Consumption = Constant + X*Output + Y*Wage + Z*Error Correction + A*Seasonal Dummies + Error Terms

    This is the equation that we are estimating here. From the table we ...

    Solution Summary

    The result sheet is assessed.