These are the steps how to do this task: (Do only what task require)

1. Review the literature and develop the theoretical model

Scholarly literature

Similar equations

Practical aspects

2. Specify the model: select the independent variables and the functional form

Independent variables and how they should be measured

The functional (mathematical) form of the variables

The type of stochastic error term

A mistake in any of three elements results in a Specification error

A Dummy variables takes on the values of one or zero depending on whether a specified condition holds

3. Hypothesize the expected signs of the coefficients

Example:

=(,+,,+)

where is demanded quantity;

P commoditys price;

- price of a complementary good;

price of a substitute good;

consumer income.

4. Collect the data. Inspect and clean the data

Sample size: the more observations the better

The same number of observations for each variable

The same frequency and time period

Degrees of freedom

Units of measurement of the variables

An outlier is an observation that lies outside the range of the rest of the observations (usually because of data entry error)

5. Estimate and evaluate the equation

OLS

6. Document the results

Explanation of the model

The assumptions

Procedures and data used

P.S. Do not choose GDP as depended variable

TASK Choose a dependent variable Think about independent variables (dummy also) Argue independent variables Hypothesize the expected signs of the coefficients Argue these signs How are you going to collect the data? . TASK Choose a dependent variable Think about independent variables (dummy also) Argue independent variables Hypothesize the expected signs of the coefficients Argue these signs How are you going to collect the data