Macroeconomics Theory and Policy (ECO202) 2021 – 2022 Writing Assignment#2 Total: 100 marks.
The purpose of this assignment is to estimate the Phillips curve and Okun’s Law for the country of your choice and write a well-structured research report about the whole process of acquiring and refining your date, estimating, and interpreting the estimated coefficients based on the theoretical background of your models and empirical implications of the estimated equations for the country of your study.
In order to help you, your article should include, among other things, following steps. note that your final paper must have an essay form, with complete structure from introduction to conclusion and references with an internal coherence
. These steps are just to help you to organize your paper, and not to be treated like questions/answers mechanically.
In order to find help for writing, referencing methods, avoiding plagiarism, consult with following website: http://www.writing.utoronto.ca/advice/using-sources
1- Choose a period time not shorter than 20 years and as recent as possible. For each year, find the following time series data for your country from reputable sources (World Bank, IMF, UN, or local statistical agency of your country of choice): Inflation rate (the GDP deflator inflation rate is preferred), unemployment rate, and real GDP, in terms of local currency. A description of the used data sources should be included. (15 points)
2- Present the data in form of tables and graphs that you think are informative for your audience.
Discuss the sources of your data, nature of the data and the assumptions that you may use to construct the needed data. It is preferable to put the tables and graphs in the appendix. (10 points)
3- You can use the Microsoft Excel LINEST function to estimate a and b coefficients in a different version of the Philips Curve in an equation like this: 1t tt bY a =+−ππ − Note: – Instead of the unemployment rate, we have the real output in this version of Phillips curve, so b must turn out to be positive, not negative. – You can use any other of statistical software that you know, instead of the LINEST function.
– If you have any problem working with the LINEST function, search YOUTUBE, for the tutorials. You can learn it within a few minutes, using the tutorials and my example file. – In order to see one example of using LINEST function for estimations, check the posted example on the portal. – All estimated coefficients and statistics should be fully presented. The exact output of the LINEST function or any other software that you use must be included. (15 points)
2
4- After estimating a and b in the previous part, using algebra, rearrange your estimated equation into the standard Phillips Curve like below to find α and natural level of output for your country of choice. Note again: I used Y instead of u in this version of the Philips Curve): ( ) YY1ttt α−π=π− − Discuss the size and sign of α and natural level of output, that you found. Are they as you expected? Explain. Discuss the statistics of the model, like R2. (15 points)
5- In this part you should estimate the Okun’s Law by estimating an equation like this: 1yt tt bg uau =+− − Where, gyt is the growth rate of real GDP. All estimated coefficients and statistics should be fully presented. The exact computer output of the estimation should be included. (15 points)
6- After estimating a and b in the previous part, using algebra, rearrange your estimated equation into the standard Okun’s Law like below to find β and g, which we discussed in the course: ( ) gguu 1yttt β−=−− − . Discuss the size and sign of β and g, that you found. Are they as you expected? Explain. Discuss the statistics of the model, like R2. (10 points)