Interpret the model's estimated parameters. Give a theoretical economic justification for the model....

Question

Interpret the model's estimated parameters. Give a theoretical economic justification for the model. Can the estimation result be used to evaluate the size of the natural rate of unemployment?

David · Accepted Answer

The above model has been designed to find the relationship between inflation and 
unemployment.  Many theories have tried to find a definite relationship between these two 
economic variables. Philips curve is the most important of them. A simple regression model of 
the form Yi = α + βXi + ui is run, where inflation is regressed on unemployment. The estimated 
intercept term is 0.532763 and the estimated coefficient term is 0.465594. Thus we can see that 
there is a positive relation between inflation and unemployment. The intercept term signifies that 
when there is no unemployment, i.e. full employment prevails, then inflation prevailing in the 
economy is 0.532763. Now, as unemployment increases by one unit, inflation also increases by 
0.465594 units. The coefficient is also significant; i.

Interpret the model's estimated parameters. Give a theoretical economic justification for the model. Can the estimation result be used to evaluate the size of the natural rate of unemployment?

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment