Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Exercise 1

Use CONSUMP.RAW for this exercise. One version of the permanent income hypothesis (PIH) of consumption is that the growth in consumption is unpredictable. [Another version is that the change in consumption itself is unpredictable; see Mankiw (1994, Chapter 15) for discussion of the PIH.] Let be the growth in real per capita consumption (of nondurables and services). Then the PIH implies that where I t - 1 denotes information known at time ( t 1); in this case, t denotes a year.
(i) Test the PIH by estimating Clearly state the null and alternative hypotheses. What do you conclude
(ii) To the regression in part (i) add the variables gy t 1 , i 3 t 1 , and inf t 1. Are these new variables individually or jointly significant at the 5% level (Be sure to report the appropriate p -values.)
(iii) In the regression from part (ii), what happens to the p -value for the t statistic on gc t 1 Does this mean the PIH hypothesis is now supported by the data
(iv) In the regression from part(ii), what is the F statistic and its associated p -value for joint significance of the four explanatory variables Does your conclusion about the PIH now agree with what you found in part (i)