ECON 382 PROJECT
Folks, you need to make sure your topic is not too broad since this will prevent you from writing a well-focused PROJECT. It is essential to do some background reading on the topic since it will help you determine whether or not your topic is feasible. As you search for an appropriate topic you should run ideas by me and I will help you narrow the focus and identify an interesting question. Once you have chosen an appropriate topic for your paper it should be easy to formulate a clear pattern.
Structure of the PROJECT: Below is a framework for writing an empirical paper.
Introduction
A. Statement of the topic and question to be analyzed.
Once you have selected a topic you should be able to state it in the form of a question that your PROJECT seeks to provide an answer to
B. Rationale for the choice of topic: It is important to tell why you chose this topic and what makes it interesting.
C. Organization of the remainder of the PROJECT Outline what will be covered in the following sections of the PROJECT to provide a roadmap of your arguments
Body of the Paper (PART 2) (inclusion of these subparts and the length of each depends on the type of TOPIC YOU HAVE SELECTED FOR YOUR PROJECT)
Presentation of related literature
A literature review summarizes the views of other scholars who have written on this topic. The literature review will allow you to demonstrate how other scholars have approached the topic and indicates a gap that you seek to fill. The length of the literature review depends on the type of project you are writing and the amount of work already written on your topic.
B. Application of Econometric Theories
You should present the econometric model/theory on which your project is based. You must display mastery of the material covered in class as well as appropriate usage of econometric theories. This does not mean that you have to develop your own mathematical model. Instead, it serves as a means to demonstrate that your ideas are grounded in econometric theory.
Analysis of Data Set
Firstly, provide a description of your data, including a discussion of how the variables for your empirical model are constructed and the sources of all your data. Second, you should provide summary statistics on the relevant variables in a table either in the body of the paper or in an appendix. In the body of the project you should include a presentation of the results of your empirical analysis and provide a careful interpretation of your findings. Your empirical analysis might entail regression analysis (one of the econometric methods we are learning), a simple statistical analysis of the data, or even the use of graphs and charts to effectively display interesting features of the data that help support the arguments made in the project in terms of substantiating causal relationship.
D. Conclusion
While concluding the project, you should restate the objective of the project. Following this, you should provide your conclusions taking care to distinguish your contribution from the existing literature on the topic.
References: News Articles versus Scholarly References: You may certainly read sources like The New York Times and The Economist in order to do some background reading on a policy issue. However, these sources are not peer reviewed and therefore are not suitable for a research paper. Econometric Lit, an online database for econometric journal articles and books, is an excellent point from which to initiate a search for scholarly literature. This and other literature databases are available through the Penrose library website. Note that it is not appropriate to use open-source online encyclopedias such as Wikipedia.
The parenthetical citations provide limited information about your sources and complete bibliographic information about each source is provided in a separate references page. Footnotes are used to incorporate additional material that is pertinent but supplemental to the statements presented in the text.
Graphs and Charts: Graphs and charts should have numbers (such as Figure 1 or Table 1) and titles. The source of the data should be indicated at the bottom of the graph or chart. You may either insert the graphs and charts in the body of the paper or include them in an appendix to the paper. Graphs may be neatly hand drawn or you may use a drawing tool included in your word processing software.
PROJECT- OPTION 1- PURCHASING POWER PARITY EFFECTING THE EXCHANGE RATES:
The news-magazine The Economist regularly publishes data on the so called Big Mac index and exchange rates between countries. The data for 30 countries from the April 29, 2000 issue is listed below:
Price of Actual Exchange Rate
Country Currency Big Mac per U.S. dollar
Indonesia Rupiah 14,500 7,945
Italy Lira 4,500 2,088
South Korea Won 3,000 1,108
Chile Peso 1,260 514
Spain Peseta 375 179
Hungary Forint 339 279
Japan Yen 294 106
Taiwan Dollar 70 30.6
Thailand Baht 55 38.0
Czech Rep. Crown 54.37 39.1
Russia Ruble 39.50 28.5
Denmark Crown 24.75 8.04
Sweden Crown 24.0 8.84
Mexico Peso 20.9 9.41
France Franc 18.5 .07
Israel Shekel 14.5 4.05
China Yuan 9.90 8.28
South Africa Rand 9.0 6.72
Switzerland Franc 5.90 1.70
Poland Zloty 5.50 4.30
Germany Mark 4.99 2.11
Malaysia Dollar 4.52 3.80
New Zealand Dollar 3.40 2.01
Singapore Dollar 3.20 1.70
Brazil Real 2.95 1.79
Canada Dollar 2.85 1.47
Australia Dollar 2.59 1.68
Argentina Peso 2.50 1.00
Britain Pound 1.90 0.63
United States Dollar 2.51
The concept of purchasing power parity or PPP (“the idea that similar foreign and domestic goods … should have the same price in terms of the same currency,” Abel, A. and B. Bernanke, Macroeconomics, 4th edition, Boston: Addison Wesley, 476) suggests that the ratio of the Big Mac priced in the local currency to the U.S. dollar price should equal the exchange rate between the two countries.
(a) Enter the data into your regression analysis program (EViews, Stata, Excel, SAS, etc.). Calculate the predicted exchange rate per U.S. dollar by dividing the price of a Big Mac in local currency by the U.S. price of a Big Mac ($2.51).
(b) Run a regression of the actual exchange rate on the predicted exchange rate. If purchasing power parity held, what would you expect the slope and the intercept of the regression to be? Is the value of the slope and the intercept “far” from the values you would expect to hold under PPP?
(c) Plot the actual exchange rate against the predicted exchange rate. Include the 45 degree line in your graph. Which observations might cause the slope and the intercept to differ from zero and one?
Answer:
(a)
Country Predicted Exchange Rate
per U.S. dollar
Indonesia 5777
Italy 1793
South Korea 1195
Chile 502
Spain 149
Hungary 135
Japan 117
Taiwan 27.9
Thailand 21.9
Czech Rep. 21.7
Russia 15.7
Denmark 9.86
Sweden 9.56
Mexico 8.33
France 7.37
Israel 5.78
China 3.94
South Africa 3.59
Switzerland 2.35
Poland 2.19
Germany 1.99
Malaysia 1.80
New Zealand 1.35
Singapore 1.27
Brazil 1.18
Canada 1.14
Australia 1.03
Argentina 1.00
Britain 0.76
(b) The estimated regression is as follows:
= -27.05 + 1.35 × Pr edExRate
R2 = 0.994, n = 29, SER = 122.15
For PPP to hold exactly, you would expect an intercept of zero and a slope of unity. Since we do not know the standard error of the slope and the intercept, and since Chapter 4 has not dealt with hypothesis testing, it is hard to judge how “far” 27.05 and 1.35 are away from zero and one respectively.
(c) The regression is represented by the solid line, while the dashed one is the 45 degree line. Most of the observations are bunched towards the origin, making it hard to judge from this graph which observations cause the regression line to differ from the 45 degree line. However, the Indonesian Rupiah is certainly a possible candidate.
11) At the Stock and Watson (http://www.pearsonhighered.com/stock_ At the Stock and Watson (http://www.pearsonhighered.com/stock_watson) website go to Student Resources and select the option “Datasets for Replicating Empirical Results.” Then select the “California Test Score Data Used in Chapters 4-9” (caschool.xls) and open it in a spreadsheet program such as Excel.
In this exercise you will estimate various statistics of the Linear Regression Model with One Regressor through construction of various sums and ratio within a spreadsheet program.
Throughout this exercise, let Y correspond to Test Scores (testscore) and X to the Student Teacher Ratio (str). To generate answers to all exercises here, you will have to create seven columns and the sums of five of these. They are
(i) Yi, (ii) Xi, (iii) (Yi- ), (iv) (Xi- ), (v) (Yi- )×(Xi- ), (vi) (Xi- )2, (vii) (Yi- )2
Although neither the sum of (iii) or (iv) will be required for further calculations, you may want to generate these as a check (both have to sum to zero).
HELP AIDS FOR THE PROJECT: USING STATA
Stata is the solution for your data science needs. It is statistical software for data science. You can 0btain and manipulate data. Explore. Visualize. Model. Make inferences. Collect your results into reproducible reports.
http://econometricstutorial.com/
STATA TUTORIAL: http://www.danielbuncic.com/otherpdf/STATA_frain.pdf
http://homepages.rpi.edu/~simonk/pdf/UsefulStataCommands.pdf
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