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Econometric Analysis - Essay Example
This paper is devoted to econometric analysis of data of certain French economic factors for the period 1955-1994. The economic factors are tabulated as annual aggregates and rates in either ordinary or logarithmic forms. They are - 1) Natural logarithm of real per capita consumption (LCF), 2) Natural logarithm of real per capita income (LYF), 3) Real interest rate (RF) and 4) Rate of unemployment (UF)…
Its analysis has two principal purposes - to promote empirical content within particular economic theories and to subject such theories to potentially falsifying tests (Econometrics, Wikipedia, 2006). Taking the first, with the French data as example, it can be said that economic theory holds that consumption should be directly proportion to income while it should be inversely so to interest and unemployment rates. The available data should reflect this and thus provide empirical evidence of the theory's validity. The tests that the data will be subjected to will assist in this quest for empiric authenticity. Such tests should not only provide broad evidence of empiricism but should also assist in determining how much current variance there may be from theoretical reckoning and should thus provide reliable pointers as to why such variance is evident. It is, of course, incumbent upon theorists to interpret why there is variance, if evident after analysis, and this is done at the end of the paper.
To find empiric elements within the variables the first strategy adopted is to assume that a certain relation exists among the variables such that LCF (natural logarithm of real per capita consumption) is taken to be an endogenous variable series that is f ...