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BSFD1 1709A, BSFD2 1709A_ASB3317 Econometrics, Individual Assignment: 1 October 2018 Page 1 of 4

BANGOR UNIVERSITY

AND

MANAGEMENT DEVELOPMENT INSTITUTE OF SINGAPORE

Course : Bachelor of Science (Hons) in Banking & Finance

(BSFD1 1709A, BSFD2 1709A)

Module Code and Title : ASB3317 Econometrics

Module Tutor : Mr Daniel Soh

Assessment : Individual Assignment

Date / Due Date : 1 October 2018

Duration / Word Length : 4000 words +/- 10%

Weighting within Module : 40% (100 marks)

Assessment

Upload the softcopy of your assignment to MDIS Blackboard’s Turnitin Assignment Link

and a hard copy of your assignment, Turnitin Originality Report and MDIS Plagiarism

Declaration Form to Student Resource Centre at Blk A, Level 2.

There will be a penalty for late submission. The electronic submissions should be a pdf

(portable document file).

The data required for the Assessment are provided on the module web page. Your answer

should be no more than 3000 words (excluding bibliography, notes, tables, figures and

equations).

BANGOR UNIVERSITY

AND

MANAGEMENT DEVELOPMENT INSTITUTE OF SINGAPORE

Course : Bachelor of Science (Hons) in Banking & Finance

(BSFD1 1709A, BSFD2 1709A)

Module Code and Title : ASB3317 Econometrics

Module Tutor : Mr Daniel Soh

Assessment : Individual Assignment

Date / Due Date : 1 October 2018

Duration / Word Length : 4000 words +/- 10%

Weighting within Module : 40% (100 marks)

Assessment

Upload the softcopy of your assignment to MDIS Blackboard’s Turnitin Assignment Link

and a hard copy of your assignment, Turnitin Originality Report and MDIS Plagiarism

Declaration Form to Student Resource Centre at Blk A, Level 2.

There will be a penalty for late submission. The electronic submissions should be a pdf

(portable document file).

The data required for the Assessment are provided on the module web page. Your answer

should be no more than 3000 words (excluding bibliography, notes, tables, figures and

equations).

BSFD1 1709A, BSFD2 1709A_ASB3317 Econometrics, Individual Assignment: 1 October 2018 Page 2 of 4

Question 1

The file “REER.xlsx” contains panel data on the real effective exchange rate of Singapore,

which includes the following variables:

REER is the real effective exchange rate index of Singapore

SIBOR is the 3-month Singapore Interbank Operating Rate

CA is the current account (in billion SGD) of Singapore

CLI is the OECD Composite Leading Index

CPI is the Consumer Price Index of Singapore

STI is the Singapore’s stock market Straits Time Index

FED is the US Fed Fund Rate

Suppose you are an economist with the Monetary Authority of Singapore (MAS). To

investigate the determinants of Singapore’s real effective exchange rate (REER), you build a

linear regression model using monthly data from the 2010-2017 period, as follow:

????? = ?0 + ?1??????+?2??? + ?3???? + ?4???? + ?5???? + ?6???? + ??

1. Use Stata to derive the OLS estimates of ?0, ?1, ?2, ?3, ?4, ?5 and ?6. (6 marks)

2. Comment on significance of the coefficient estimates of your fitted model. Provide economic intuition on the relationships you uncover. (14 marks)

3. How much will a one standard deviation increase in the Singapore’s Straits Time Index (STI) affect the country’s real effective exchange rate? (4 marks)

4. What is the real effective exchange rate predicted if all the explanatory variables are set at their sample mean values? (5 marks)

5. For each of the following, formulate a null hypothesis and test it using the regression equation.

i. A $1 billion increase in the current account will cause the real effective exchange rate index to increase by 3 points. (7 marks)

ii. The SIBOR and FED will have the same effect on the real effective exchange rate. (7 marks)

iii. The cumulated effect of a point increase in both CPI and CLI will increase the real effective exchange rate by 1.5 point. (7 marks)

Question 1

The file “REER.xlsx” contains panel data on the real effective exchange rate of Singapore,

which includes the following variables:

REER is the real effective exchange rate index of Singapore

SIBOR is the 3-month Singapore Interbank Operating Rate

CA is the current account (in billion SGD) of Singapore

CLI is the OECD Composite Leading Index

CPI is the Consumer Price Index of Singapore

STI is the Singapore’s stock market Straits Time Index

FED is the US Fed Fund Rate

Suppose you are an economist with the Monetary Authority of Singapore (MAS). To

investigate the determinants of Singapore’s real effective exchange rate (REER), you build a

linear regression model using monthly data from the 2010-2017 period, as follow:

????? = ?0 + ?1??????+?2??? + ?3???? + ?4???? + ?5???? + ?6???? + ??

1. Use Stata to derive the OLS estimates of ?0, ?1, ?2, ?3, ?4, ?5 and ?6. (6 marks)

2. Comment on significance of the coefficient estimates of your fitted model. Provide economic intuition on the relationships you uncover. (14 marks)

3. How much will a one standard deviation increase in the Singapore’s Straits Time Index (STI) affect the country’s real effective exchange rate? (4 marks)

4. What is the real effective exchange rate predicted if all the explanatory variables are set at their sample mean values? (5 marks)

5. For each of the following, formulate a null hypothesis and test it using the regression equation.

i. A $1 billion increase in the current account will cause the real effective exchange rate index to increase by 3 points. (7 marks)

ii. The SIBOR and FED will have the same effect on the real effective exchange rate. (7 marks)

iii. The cumulated effect of a point increase in both CPI and CLI will increase the real effective exchange rate by 1.5 point. (7 marks)

BSFD1 1709A, BSFD2 1709A_ASB3317 Econometrics, Individual Assignment: 1 October 2018 Page 3 of 4

Question 2

The file “WAGE.xlsx” contains the cross-sectional data on the national labour statistics of

South Korea. It includes the following variables:

WAGE is the monthly wage of employee

EDU measures the years of education of employee

EXP measures the years of working experience of employee

AGE is the age of employee

GEN is a dummy variable which is equal to 1 if the employee is male, 0 otherwise

UNI is a dummy variable which is equal to 1 if the employee is a graduate, 0 otherwise

NAT is a dummy variable which is equal to 1 if the employee is a Korean, 0 otherwise

M is a dummy variable which is equal to 1 if the employee is married, 0 otherwise

To investigate whether there were signs of wage discrimination in the South Korea labour

market, you run the following linear regression:

????? = ?0 + ?1????+?2???? + ?3???? + ?4???? + ?5???? + ?6???? + ?7?? + ??

1. Use State to derive the OLS estimates for of ?0, ?1, ?2, ?3, ?4, ?5, ?6 and ?7. (8 marks)

2. Using your fitted model, what would be the increment in monthly wage if the worker obtained a University degree? (2 marks)

3. Are there signs of wage discrimination being practiced in the Singapore labour market? State the null hypotheses for each case and explain your results. (5 marks)

4. What is the expected wage for a 32-year-old Korean female employee who is married and has invested 14 years in education to earn a University degree, but has no prior working

experience. (4 marks)

5. Rewrite the equation and test the hypothesis that a non-Korean employee will see a bigger wage increment from each additional year of working experience. (6 marks)

Question 2

The file “WAGE.xlsx” contains the cross-sectional data on the national labour statistics of

South Korea. It includes the following variables:

WAGE is the monthly wage of employee

EDU measures the years of education of employee

EXP measures the years of working experience of employee

AGE is the age of employee

GEN is a dummy variable which is equal to 1 if the employee is male, 0 otherwise

UNI is a dummy variable which is equal to 1 if the employee is a graduate, 0 otherwise

NAT is a dummy variable which is equal to 1 if the employee is a Korean, 0 otherwise

M is a dummy variable which is equal to 1 if the employee is married, 0 otherwise

To investigate whether there were signs of wage discrimination in the South Korea labour

market, you run the following linear regression:

????? = ?0 + ?1????+?2???? + ?3???? + ?4???? + ?5???? + ?6???? + ?7?? + ??

1. Use State to derive the OLS estimates for of ?0, ?1, ?2, ?3, ?4, ?5, ?6 and ?7. (8 marks)

2. Using your fitted model, what would be the increment in monthly wage if the worker obtained a University degree? (2 marks)

3. Are there signs of wage discrimination being practiced in the Singapore labour market? State the null hypotheses for each case and explain your results. (5 marks)

4. What is the expected wage for a 32-year-old Korean female employee who is married and has invested 14 years in education to earn a University degree, but has no prior working

experience. (4 marks)

5. Rewrite the equation and test the hypothesis that a non-Korean employee will see a bigger wage increment from each additional year of working experience. (6 marks)

BSFD1 1709A, BSFD2 1709A_ASB3317 Econometrics, Individual Assignment: 1 October 2018 Page 4 of 4

Question 3

The file “GDP.xlsx” contains panel data on the economic condition of Singapore, which

includes the following variables:

GDP is the natural logarithm of Singapore real GDP

M2 is the money supply of Singapore (in SGD billion)

FDI is the Singapore’s share of global FDI

REER is the Singapore’s real effective exchange rate

GOV is the Singapore government budget balance

CLI is the OCED Composite Lead Index

1. Use Stata to build a linear regression model to investigate the determinants of Singapore’s real GDP numbers. Comment on the results and provide intuition on your findings.

(12 marks)

2. Test for heteroscedasticity in your regression. Suggest how you can correct for the problem of heteroscedasticity in linear regressions. (13 marks)

END OF PAPER

Question 3

The file “GDP.xlsx” contains panel data on the economic condition of Singapore, which

includes the following variables:

GDP is the natural logarithm of Singapore real GDP

M2 is the money supply of Singapore (in SGD billion)

FDI is the Singapore’s share of global FDI

REER is the Singapore’s real effective exchange rate

GOV is the Singapore government budget balance

CLI is the OCED Composite Lead Index

1. Use Stata to build a linear regression model to investigate the determinants of Singapore’s real GDP numbers. Comment on the results and provide intuition on your findings.

(12 marks)

2. Test for heteroscedasticity in your regression. Suggest how you can correct for the problem of heteroscedasticity in linear regressions. (13 marks)

END OF PAPER