Analyze the following results from a regression explaining aggregate U.S. consum

Question

Analyze the following results from a regression explaining aggregate U.S. consumption from 1929-2003.

Please show all the step, many thanks!

2. Analyze the following regression results from a regression explaining aggregate U.S. consumption from 1929-2003. C 5 + .935 Yd + .015 (WP); where C-aggregate real consumption Yd- aggregate real disposable income (W/P)- aggregate real wealth Mean Yd-5,000 Mean (W/P) 16,000 Mean C 4,920 Range of Yd: (400 12,000) Range of (W/P): (1,200-40,000) (All numbers in billions of 2003 dollars) (90) (.01) (standard errors in parentheses) n 75 R-squared: .975 D-W (d): 1.250 In your answer, consider questions regarding likely violation of the assumptions of the classical linear regression model, as well as "significance."

Explanation / Answer

We can check for the overall significance of the model using the F statistic which is

F = [Explained Variation/(k-1)]/[Unexplained Variation/(n-k)]

F = R^2/(K-1)/(1-R^2)/(N-K)
= 0.975/(3-1)/(1-0.975)/(75-3)
= [0.975/2]/[0.025/72]
= 1404

Because the p-value of F Statistic 1404 will be extremely small therefore we reject the null hypothesis that overall addition of variables is not signicantly improving the model.

As the D-W (d) is coming out to be 1.250 using the D-W table we can conclude that there is no autocorrelation generally the value above 3 and below 1 are cause of concern while values between 1.5 and 2.5 are relatively normal. Therefore, in the given problem we found no evidence of violation of the assumptions of classical linear regression model.

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