applied econometrics - united kingdom & brazil & azerbaijan

Applied Econometrics:

United Kingdom & Brazil & Azerbaijan

“Tezer Yelkenci”

UNITED KINGDOM&

BRAZIL&

AZERBAIJAN

United KingdomU

NIT

ED

KIN

GD

OM First industrilized & still 6. largest economy in the world

Izmir University of Economics ECON324 May 2011

The time series used in this study consist of quarterly observations for the period 1955-1972 The model is specified in continuous time as a system of stochastic differential equations. For economy of notation, the error terms are omitted and the model is described in deterministic form.If employment is below the level that the authorities wish to achieve, open market operations will be used to increase the volume of money and hence to decrease the interest rate and to increase investment; and, the aggregate of liquid assets and bonds held by banks would be determined by the wealth identity of the banking sector.

Literature Review

The UK is still the sixth largest economy in the world by purchasing power parity

The British Economy is one of the most globalized economies in the world, mostly thanks to the city of London, being the largest financial center in the world.

BrazilB

RA

ZIL

World’s largest 8. economy but in several years will be fifth


They try to find out monetary transmission in an emerging targeter in terms of Brazil.Interest rate changes have swifter effects on output and inflation compared to advanced economies and that exchange rate dynamics plays a key role in this connection.

Literature Review

One of the countries which register in BRIC

Has the world’s largest commercial cattle herd at 170 million head

World's largest producer of sugarcane, coffee, tropical fruits, frozen concentrated orange juice.

AzerbaijanA

ZER

BA

IJAN

Azerbaijan is an economy in transition where the state continues to play a dominant role.


They investigated the impact of government expenditure on growth with respect to Azerbaijan. They evaluate a fiscal scenario based on the assumption of a rapid scaling-up of expenditure to be followed by a rapid scaling-down in the context of Azerbaijan’s current temporary oil production boom. The results of the simulations of the Azerbaijan-specific model are similar to these lessons in many respects.

Literature Review

Annual growth exceeding 10% since 2000.

Has important oil reserves and a significant agronomic potential based on a wide variety of climatic zones.

The ModelM

OD

EL,

METH

OD

OLO

GY &

DATA


A Keynesian model of aggregate demand is estimated:

Yt = COt + It + Gt +NXt

COt = β0 +β1YDt +β2COt-1 +ε1t

YDt =Yt - Tt

It = β3 +β4Yt +β5rt-1 +ε2t

CO is consumption Y is output T is tax receipts r is interest rate I is investment G is government spending YD is disposable income NX is net exports.

Methodology & DataM

OD

EL,

METH

OD

OLO

GY &

DATA


We’ve extracted our data, which consists of annual values of the indicators, which are gross domestic product, household final consumption expenditure, gross capital formation, general government final consumption expenditure, merchandise exports and imports, interest rate, and net taxes on products for United Kingdom, Azerbaijan, and Brazil from World Development Indicators (WDI) 2010 ranging from 1999 to 2009. We calculated disposable income by extracting net taxes on products from gross domestic product, and net exports by extracting imports from exports.

We estimated our equations by TSLS using the instruments:

NX G COt-1 rt-1 T

United KingdomR

ESU

LTS


Dependent Variable: CO Instrument specification: CO(-1) T G NX R(-1) Coefficient Std. Error t-Statistic Prob.

Method: Two-Stage Least Squares C 6.99E+10 8.25E+09 8.477.653 0.0001***Included observations: 10 after adjustments YD 0.707140 0.009158 7.721.672 0.0000***Constant added to instrument list CO(-1) -0.025115 0.012324 -2.037.798 0.0810*

R-squared 0.999733 Mean dependent var 1.36E+12Adjusted R-squared 0.999656 S.D. dependent var 2.96E+11S.E. of Regression 5.50E+09 Sum squared resid 2.11E+20F-statistic 13077.97 Durbin-Watson stat 2.246.224Prob(F-Statistic) 0.000000 Second-Stage SSR 7.55E+20J-Statistic 4.001.006 Instrument rank 6Prob(J-Statistic) 0.261356

Dependent Variable: I Instrument specification: CO(-1) T G NX R(-1) Coefficient Std. Error t-Statistic Prob.

Method: Two-Stage Least Squares C -3.96E+10 1.04E+11 -0.381143 0.7144Included observations: 10 after adjustments Y 0.177090 0.023393 7.570088 0.0001***Constant added to instrument list R(-1) 4.78E+09 1.60E+10 0.299283 0.7734

R-squared 0.899302 Mean dependent var 3.55E+11Adjusted R-squared 0.870531 S.D. dependent var 8.79E+10S.E. of Regression 3.16E+10 Sum squared resid 7.01E+21F-statistic 31.26995 Durbin-Watson stat 0.878413Prob(F-Statistic) 0.000324 Second-Stage SSR 6.98E+21J-Statistic 6.958818 Instrument rank 6Prob(J-Statistic) 0.073222

AzerbaijanR

ESU

LTS



Method: Two-Stage Least Squares C 3.17E+09 5.22E+08 6.066479 0.0005***Included observations: 10 after adjustments YD 0.316725 0.036941 8.573728 0.0001***Constant added to instrument list CO(-1) -0.273464 0.148945 -1.836003 0.1090



Method: Two-Stage Least Squares C 1.32E+10 2.16E+09 6.127945 0.0005***Included observations: 10 after adjustments Y 0.189926 0.012545 15.13929 0.0000***Constant added to instrument list R(-1) -6.47E+08 1.21E+08 -5.358508 0.0011***


BrazilR

ESU

LTS



Method: Two-Stage Least Squares C 1.51E+10 6.86E+09 2.206767 0.0631*Included observations: 10 after adjustments YD 0.613149 0.021898 28.00040 0.0000***Constant added to instrument list CO(-1) 0.111589 0.037621 2.966131 0.0209**



Method: Two-Stage Least Squares C -2.58E+10 6.97E+10 -0.370223 0.7222Included observations: 10 after adjustments Y 0.197003 0.021664 9.093563 0.0000***Constant added to instrument list R(-1) 1.16E+08 9.19E+08 0.126045 0.9032


ConclusionC

ON

CLU

SIO

N


In all countries there is a positive and significant effect between disposable income and total personal consumption at %1 significance level. In terms of United Kingdom there is a negative and significant effect between lagged total personal consumption and total personal consumption at 10% significance level.Respect to Brazil there is positive and significant effect between lagged total personal consumption and total personal consumption at 5% significance level.According to Azerbaijan there is a negative effect between lagged total personal consumption and total personal consumption which is not significant. For all countries there is a positive and significant effect between GDP and domestic investment at %1 significance level. In terms of both United Kingdom and Brazil there is a positive effect between real interest rate and domestic investment which is not significant; on the other hand, with respect to Azerbaijan the negative and significant effect between real interest rate and domestic investment exists at %1 significance level.Despite of interpreting results, because of containing unit root the results are unreliable.

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ank

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applied econometrics - united kingdom & brazil & azerbaijan

Economy & Finance