Instant Econometrics Project 2

As incomes rise, it is interesting to see whether people spend more of their new wealth on imports or if they spend their money in their home country. A simple linear model to determine the spending on imported goods is:

Y_t = b₁ + b₂ * X_t Where:
Y_t is expenditure on imported goods.
X_t is personal disposable income.

For an econometrics paper, you can see if this relationship holds in the United States. You can use monthly import/export data that be can downloaded at:

About Economics - Import Export Data Page

The data is in Microsoft Excel format, but you should be able to convert it to any econometrics program you'd like.

You should consider the following issues in your paper:

• How strong is the relationship between personal disposable income and imports?
• Does the value of imports from some country rise faster than imports from other countries?
• Should you use import data from one country? How about combining data from several countries? Should import data from each country be a seperate variable?
• If extra variables are added, how should you deal with the problem of multicollinearity?

As always, if you have any questions or comments, feel free to e-mail me.