UNIVERSITY OF CALIFORNIA, LOS ANGELES
Department of Economics

Economics 143 (Cameron) - Applied Regression Analysis

Computing Lab Session #8: Serially Correlated Errors


Goals for this Lab:

A. For this lab, we will be using the data (failn.dat and mfgprod.dat) and the initial program file (fail.sha) employed in the classroom handout on serially correlated errors. The dependent variable is number of business failures per month in the US (from January 1984 through October 1997; CITIBASE variable FAILN). The main explanatory variable being considered is total manufacturing production, 1987=100, not seasonally adjusted; CITIBASE variable IPMFG6).
  1. Introduce access to the CITIBASE inventory of time-series data
  2. Explore use of DWPVALUE and ORDER= options on OLS command
  3. Explore consequences of failing to recognize AR(1) errors in regression
  4. Investigate higher-order correlation patterns in regression errors
  5. Use of DLAG option if first explanatory variable is lagged dependent variable (a dynamic model)
  6. Review of the process of iterations to convergence on the rho parameter(s)
B. Explore the consequences of inadvertently trying to run a regression on what is actually an accounting relationship. For example, running total cost of production on the separate costs of skilled labor, unskilled labor, materials, capital equipment rentals, etc.
  1. Examine the small program contained in accountg.sha. Observe that the program creates one hundred observations on a set of four statistically independent variables: x, z, w, and v. The "dependent variable" y is then formed as being approximately the sum of these four constituent variables
  2. Run the program using the default value of the dispersion in the normally distributed error term. Think about what the coefficients should be. Is your intuition confirmed?
  3. Try the program with different values of "sig," implying different proportions of y being unmeasured by the components x, z, w, and v. What happens to the slope coefficients? What about the key hypothesis tests?
Update date: 11/30/98; Prepared by: Trudy Ann Cameron; Site Index