Question
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
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 dataStep by Step Solution
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