Basic Econometrics 5th Edition by Damodar Gujarati,Dawn Porter

Question

Basic Econometrics 5th Edition by Damodar Gujarati,Dawn Porter

النسخة 5الرقم المعياري الدولي: 978-0073375779

Basic Econometrics 5th Edition by Damodar Gujarati,Dawn Porter

النسخة 5الرقم المعياري الدولي: 978-0073375779

تمرين 2

Using Table 1.3, plot the inflation rate of Canada, France, Germany, Italy, Japan, and the United Kingdom against the United States inflation rate.
b. Comment generally about the behavior of the inflation rate in the six countries vis-a-vis the U.S. inflation rate.
c. If you find that the six countries inflation rates move in the same direction as the U.S. inflation rate, would that suggest that U.S. inflation "causes" inflation in the other countries Why or why not
TABLE 1.3
CPI in Seven Industrial Countries, 1980-2005 (1982-1984 = 100 )

Source: Economic Report of the President, 2007, Table 108, p. 354.

التوضيح

موثّق

Consumer Price Index measures the weighted average of prices of consumer goods and services purchased in an economy. Table 1.1 gives data on Consumer Price index of 7 countries during period of 1980-2005, with 100 as the base of index during 1982-84.

Inflation rate is measure of rate of increase in price level in an economy over a period of time. Table 2.2 gives inflation rates of the above seven countries from 1981 to 2005

a.
Plot inflation rate of countries C, J, F, G, I and B against inflation rate of country U using table 2.2.

b.
From the graph 1.1, it can be concluded that inflation rate of countries C, J, F, G, I and B is positively correlated with inflation rate of country U. This mean inflation rate of 6 countries rises with rise in inflation rate of country U, and falls with fall in inflation rate of country U.
c.
Inflation rate of countries C, J, F, G, I and B is positively correlated with inflation rate of country U, but it does not prove that inflation in country U causes inflation in other countries. Statistical relationship doesn't imply causation. Causation comes from theoretical considerations. Many macroeconomic factors are responsible for inflation in any country. Detailed study of these actors is needed to establish relation between inflation in country U with inflation in other countries.
Though, Inflation rate of 6 countries moves in the same direction as country U's inflation rate, it cannot be said that inflation in country U causes inflation in other 6 countries.