on changes of oil prices (OIL), interest rate (INTERESTRATE) and inflation rates
ID: 3311250 • Letter: O
Question
on changes of oil prices (OIL), interest rate (INTERESTRATE) and inflation rates (INFLATION)
(monthly data from 1990 to 2013):
REALGDP = CONSTANT + a OIL + b INTERESTRATE + c INFLATION
Discuss the statistical significance of the parameters, interpret the sign and magnitude of the estimates, and overall fit of the model.
Are the results in line with the predictions of the theory and why?
Question 1 The below table shows the results of an OLS regression of US real GDP growth rates (REALGDP) on changes of oil prices (OIL), interest rate (INTERESTRATE) and inflation rates (INFLATION) (monthly data from 1990 to 2013) REALGDP = CONSTANT + a * OIL + b * INTERESTRATE + c * INFLATION CONSTANT OIL INTERSTRATE 1-0012 INFLATION Adj-R2 Coefficient 0.015 0.037 T-stat 12.454 4.565 5.564 1.56 alue 0.000 0.003 0.032 0.145 0.004 58% (a) Discuss the statistical significance of the parameters, interpret the sign and magnitude of the estimates, and overall fit of the model (b) Are the results in line with the predictions of the theory and why?Explanation / Answer
(a)
P-value of coefficient of parameters OIL, INTERSTRATE are less than significance level of 0.05. So the parameters OIL, INTERSTRATE are significant in the model for determining REALGDP. P-value of coefficient of parameter OIL, INFLATION is greater than significance level of 0.05. So the parameter INFLATION is not significant at 0.05 significance level in the model for determining REALGDP.
Interpretation of coeffcient estimates -
With 1 unit increase in OIL, REAL GDP decreases by 0.037 unit.
With 1 unit increase in INTEREST RATE, REAL GDP decreases by 0.012 unit.
With 1 unit increase in INFLATION, REAL GDP decreases by 0.004 unit.
Adj-R2 is 0.58 which shows that the overall the model is good fit of the data.
Yes, the the results in line with the predictions of the theory because in economics, rising oil prices, interest rates and inflation have negative impact on GDP.
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