Statistics Solutions

Solution: We want to test the Quantity Theory of Money using short run data. Calculate DM/M = Ln(M2 t /M2 t-1) and DP/P = Ln(P t /P t-1) and regress

Question: We want to test the Quantity Theory of Money using short run data. Calculate DM/M = Ln(M2 t /M2 t-1 ) and DP/P = Ln(P t /P t-1 ) and regress DP/P on DM/M without a constant term in the equation. Test the hypothesis that the beta coefficient in the equation DP/P = (DM/M) is one, i.e., the null hypothesis is H 0 :  = 1. Can it be rejected?

Excel Instructions:

Copy the data to the "Quantity Theory" worksheet. Delete the data except M2 and P. In cell D2 type 'DM/M'. In cell D3 type '=Ln(b3/b2)'. Copy those instructions for the rest of the D column. This is the percent change in M2. In cell E2 type 'DP/P'. Calculate the inflation rate the same way you calculated the change in M2.

We're ready to run a regression equation. Select Tools-Data Analysis-Regression. The Y variable is the inflation rate DP/P. The x variable is the change in money balances, DM/M. Check 'labels' and 'constant is zero' boxes. Select 'output range' and select cell H3. Hit 'OK.'

What is the coefficient for DM/M? Can we reject the Quantity Theory in the short run?

Price: $2.99
Solution: The downloadable solution consists of 1 pages
Deliverable: Word Document


∴ Other downloads you may be interested in ∴

log in to your account

Forgot password?
Don't have a membership account?
REGISTER

reset password

Back to
log in

sign up

Back to
log in