Class1 Ex1 Color Tv Prices

Université Paris I Applied Econometrics

Faye Steiner

Exercise 1 : Reading in data and performing basic analysis using Prices and Production of Color TV Sets in the US, 1964 – 1979 The data: Year

Price Index

Cumulative Production (in millions)

1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

777 779 787 746 662 615 624 549 520 474 448 442 430 407 380 360

3.104 5.798 10.91 16.373 22.588 28.779 34.099 41.373 50.218 60.289 68.7 74.919 83.113 92.454 103.674 113.17

a) Read in the data from the file color_tv_prices.txt. Name your variables. Verify that you have read your data in correctly by comparing your values to those above (browse or list commands) b) Find the means and variances. Find the correlations between prices and cumulative production. Find the variance-covariance matrix for these variables. Do you expect the correlation to be positive or negative? Why? c) Create two new variables that are the natural log of price and cumulative production, respectively. d) Graph Ln price against Log Production. Is this graph consistent with your expectations? Why? e) Perform a simple linear regression of Ln price on a constant and Ln production. Interpret your results. Do they seem plausible? Why or why not? f) Compute the residuals. Graph the residuals over time. Is there a time series pattern?