Question: The following table shows a portion of
The following table shows a portion of monthly data on the personal savings rate (Savings in %) and personal disposable income (Income in $ billions) in the U.S. from January 2007 to November 2010. 
a. Estimate and interpret a log-log model, ln (Savings) = β0 + β1ln (Income) + ε. What is the predicted percentage change in savings when personal disposable income increases by 1%? b. Suppose we want to test whether or not there has been a structural shift due to the financial crisis that erupted in the fall of 2008. Consider a dummy variable d that assumes a value 0 before August 2008 and a value of 1 starting August 2008 onwards. Estimate: ln (Savings) = β0 + β1ln (Income) + β2d + β3In (Income) × d + ε. What is the predicted percentage change in savings when personal disposable income increases by 1% prior to August 2008? What is the corresponding predicted percentage change starting in August 2008 onward? c. At the 5% significance level, conduct the partial F test to determine whether or not β2 and β3 are jointly significant. Has there been a structural shift?
Transcribed Image Text:
Date Savings Income 2007-01 2.2 10198.2 2007-02 2.3 10252.9 2010–11 5.5 11511.9
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