FINANCIAL ECONOMETRICS I

HOMEWORK 1

1. The following table shows inflation rates for five industrialized countries during
the period of 1960 to 1980
OBS
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980

USA
1.5
1.1
1.1
1.2
1.4
1.6
2.8
2.8
4.2
5.0
5.9
4.3
3.6
6.2
10.9
9.2
5.8
6.4
7.6
11.4
13.6

UK
1.0
3.4
4.5
2.5
3.9
4.6
3.7
2.4
4.8
5.2
6.5
9.5
6.8
8.4
16.0
24.2
16.5
15.9
8.3
13.4
18.0

JAP
3.6
5.4
6.7
7.7
3.9
6.5
6.0
4.0
5.5
5.1
7.6
6.3
4.9
12.0
24.6
11.7
9.3
8.1
3.8
3.6
8.0

GER
1.5
2.3
4.5
3.0
2.3
3.4
3.5
1.5
1.8
2.6
3.7
5.3
5.4
7.0
7.0
5.9
4.5
3.7
2.7
4.1
5.5

FRA
3.6
3.4
4.7
4.8
3.4
2.6
2.7
2.7
4.5
6.4
5.5
5.5
5.9
7.5
14.0
11.7
9.6
9.4
9.1
10.7
13.3

A) Using E-views, make a graph of inflation rate through time for each country
(horizontal axis for time and vertical axis for inflation rate). Draw all inflation rates in
just one diagram. Print it in black and white.
B) What general conclusions can you draw from this behavior in the five countries?
For this, you may consider the following topics:
Inflation trends on the five countries
Variability in each economy
Periods of highest volatility
C) What are the two countries that seem to have the more variable inflation rate?
What could be an explanation for this change?

2. The following table shows the exchange rate for nine industrialized countries
during the period of 1985 to 2006. Except for the United Kingdom, the rate is given
as foreign currency per dollar. For the UK, the exchange rate is given in dollars per
sterling pound.
a) In just one graph, draw the Exchange rate for each country using e-views
(print it in black and white and be sure we can recognize each variable in
the drawing). The horizontal axis is the time and make comments about the
behavior of all variables.
b) The dollar appreciates if you can buy more foreign currency with the same
amount of dollars. On the other hand, the dollar depreciates if you can buy
less foreign currency with the same amount of dollars. Considering the
same period, what has been the dollar behavior with respect to each
currency?
c) Mention the main factors that determine the appreciation or depreciation of
a currency
TABLE 1.4 Foreign exchange rates, 19852006
[Foreign currency units per U.S. dollar, except as noted; certified noon buying rates in New York]
Period

Australia
(dollar) 2

Canada
(dollar)

China,
P.R.
(yuan)

Japan
(yen)

Mexico
(peso)

South
Korea
(won)

Sweden
(krona)

Switzerla
nd (franc)

United
Kingdom
(pound) 2

1985

0.7003

1.3659

2.9434

238.47

0.257

872.45

8.6032

2.4552

1.2974

1986

0.6709

1.3896

3.4616

168.35

0.612

884.60

7.1273

1.7979

1.4677

1987

0.7014

1.3259

3.7314

144.60

1.378

826.16

6.3469

1.4918

1.6398

1988

0.7841

1.2306

3.7314

128.17

2.273

734.52

6.1370

1.4643

1.7813

1989

0.7919

1.1842

3.7673

138.07

2.461

674.13

6.4559

1.6369

1.6382

1990

0.7807

1.1668

4.7921

145.00

2.813

710.64

5.9231

1.3901

1.7841

1991

0.7787

1.1460

5.3337

134.59

3.018

736.73

6.0521

1.4356

1.7674

1992

0.7352

1.2085

5.5206

126.78

3.095

784.66

5.8258

1.4064

1.7663

1993

0.6799

1.2902

5.7795

111.08

3.116

805.75

7.7956

1.4781

1.5016

1994

0.7316

1.3664

8.6397

102.18

3.385

806.93

7.7161

1.3667

1.5319

1995

0.7407

1.3725

8.3700

93.96

6.447

772.69

7.1406

1.1812

1.5785

1996

0.7828

1.3638

8.3389

108.78

7.600

805.00

6.7082

1.2361

1.5607

1997

0.7437

1.3849

8.3193

121.06

7.918

953.19

7.6446

1.4514

1.6376

1998

0.6291

1.4836

8.3008

130.99

9.152

1,400.40

7.9522

1.4506

1.6573

1999

0.6454

1.4858

8.2783

113.73

9.553

1,189.84

8.2740

1.5045

1.6172

2000

0.5815

1.4855

8.2784

107.80

9.459

1,130.90

9.1735

1.6904

1.5156

2001

0.5169

1.5487

8.2770

121.57

9.337

1,292.02

10.3425

1.6891

1.4396

2002

0.5437

1.5704

8.2771

125.22

9.663

1,250.31

9.7233

1.5567

1.5025

2003

0.6524

1.4008

8.2772

115.94

10.793

1,192.08

8.0787

1.3450

1.6347

2004

0.7365

1.3017

8.2768

108.15

11.290

1,145.24

7.3480

1.2428

1.8330

2005

0.7627

1.2115

8.1936

110.11

10.894

1,023.75

7.4710

1.2459

1.8204

2006

0.7535

1.1340

7.9723

116.31

10.906

954.32

7.3718

1.2532

1.8434

SOURCE: Economic Report of the President. 2007. Table B-110, p. 356.

3. Use the data in table 1.1 (eggs production in the US) and using E-views answer
the following:
a) Make a graph for each year of eggs production in the horizontal axis and eggs
price on the vertical axis. Use a scatter diagram.
b) Do you observe any relationship between quantity produced and price?
c) Do you see a positive relation between the two variables in b)? If there is a
positive relation, can we say that the diagram is a supply or demand function?
d) Do you observe any negative relationship between the two variables? If the
relation is negative, can we say that the diagram represents a supply or demand
function?