Answer Happy

The following questions are based on Question 10.3 from Hill, Griffiths and Lim (2008). To examine the quantity theory of money, Brumm (2005)' specifies the regression equation Inf=B1 + B2Mon + B3Out + e where = = = Inf=growth rate of the general price level, Mon = growth rate of the money supply, Out = growth rate of national output. Data for these variables for 76 countries in 1995 are in this file. The quantity theory of money suggests that B1 = 0, B2 = 1 and 33 = -1 Estimate the regression model using OLS and White's heteroskedasticity-consistent estimator of the standard errors and test the null hypothesis implied by the quantity theory of money using a 1% significance level. (a) Enter the value of the test statistic in the box below (rounded to 3 decimal places). = (b) Enter the critical value of the test statistic in the box below (rounded to 3 decimal places).

It is sometimes argued that output is endogenous in the previous regression equation. Estimate the regression model using the Two-Stage Least Squares (2SLS) estimator with the variables 'school', 'invest', 'poprate' and 'initial' used as instruments ('school' a measure of the population's educational attainment, 'invest' is the average investment share of GDP, 'poprate' is the average population growth rate and initial' is the initial level of real GDP). Using a significance level of 1%, test the null hypotheses implied by the quantity theory of money. As before, use White's covariance estimator. (a) Enter the value of the test statistic in the box below (rounded to 3 decimal places). Note: You should use the 'linear restrictions' option in the 'tests' menu. Instead of an F- statistic, Gretl will produce a robust x2 statistic. You should enter this in the box below. (b) Enter the critical value of the test statistic in the box below (rounded to 3 decimal places). (c) Do you reject the quantity theory of money using the 25LS estimator? Oa. Yes. Ob. No.

Use the Hausman test to determine whether national output growth is in fact endogenous. Use a significance level of 5%. (a) Enter the value of the test statistic in the box below (rounded to 3 decimal places). (b) Enter the critical value of the test statistic in the box below (rounded to 3 decimal places). (c) Does this test indicate that national output growth is endogenous? Oa. Yes. Ob. No.