Let’s go for a drive baby!Let’s walk home, it’s much more romantic!

Group Class: Tut3AC11Group members:

Nguyen Van AnhNguyen Thi HuongNguyen Thi LuongTran Thi Lan

Determinants of Petrol Price

in Vietnam

Estimating equation 2

Model specification1

Significance tests and interpretation3

Outline

Errors checking4

Conclusion5

Model specification1

Variables determination

Variables determination

Model specification1

- Input price => Product price

Crude oil Petrol

- Expected sign: (+)

10,000

12,000

14,000

16,000

18,000

20,000

22,000

20 40 60 80 100 120 140

CRP

PP

Crude oil price:

Variables determination

Model specification1

- Inflation rate = overall level price

Petrol – commodity price

- Expected sign: (+)

Inflation rate:

10,000

12,000

14,000

16,000

18,000

20,000

22,000

0 5 10 15 20 25 30

INF

PP

Variables determination

Model specification1

-Exchange rate: key determinant of International transactions

Import

Petrol

- Expected sign: (+)10,000

12,000

14,000

16,000

18,000

20,000

22,000

15,000 16,000 17,000 18,000 19,000 20,000 21,000

EX

PP

Exchange rate:

Data

Model specification1

- Time-series: 2007 - 2011

- Descriptive statistics:

Crude oil price

(USD/Barrel)

Inflation rate

(%)

Exchange rate

(USD/VND)

Petrol Price

(VND/Liter)

Mean 81.563 13.249 17761.317 15416.500

Standard

deviation21.016 7.385 1698.164 3386.088

Variance 441.663 54.540 2883760.152 11465589.237

Estimating equation 2

1 2 3 4* * *PP CRP INF EX

Regression model:

Model R-squared CV

Lin - Lin 0.9066 0.0689

Log - Lin 0.8750 0.000832

Lin - Log 0.9051 0.0694

Log - Log 0.8837 0.008032

Choosing the best fitted model:lnPP^ = 7.5436 +0.00435*CRP + 0.000925*INF + 9.62E-05*EX

Significance tests and interpretation3

Significance test:

Overall significant (F-test)

Individual partial significance (t-test):

• , , : statistically significant

• : statistically insignificant

1

2

4

3

Dropping - Significance test (F-test):

• is irrelevant to the model = > Drop

3

3

3

New model:

Ln PP^ = 7.5371+ 0.0045*CRP + 9.64E-05*EX

Significance tests and interpretation3

Interpretation of fitness of model:

R2 = 0.87: 87% of variation in PP explained by variation

in CRP & EX

Interpretation of coefficients:

• = 7.5471: median monthly petrol price is $1601.99

when CRP=0, EX=0

• = 0.0045: $1 in CRP => 0.45% in PP

• = 9.64E-05: 1 unit in EX => 0.00964% in PP

1

2

3

Errors checking4

Multicollinearity:

•

• ↑ => ↓ t-stat => probability to make type II error

• Detection: VIF – variance inflating factor

100486.11

)215332.0(12

VIF

=> No multicollinearity in the model

Errors checking4

Heteroscedasticity:

• Var (ui/Xi) = (σi)^2

• OLS estimators: no longer BLUE

F & t-stats are unreliable (RSS & SEE)

• Detection: White heteroscedasticity test ( with cross term)- Step 1: Ho: homoscedasticity

Ha: heteroscedasticity - Step 2: Run the auxiliary regression using Eview Obtain W = n*R2 (R2 of the new model)- Step 3: α = 5%- Step 4: Reject Ho if W> chi-square at 5% and df=9- Step 5: W= 13.13301< 16.92

Þ Do not reject Ho => no existence of Heteroscedasticity

Errors checking4

Autocorrelation:

•

• OLS estimators: no longer BLUE

↓ t-stat => probability of type II error

F & t-stats are unreliable

• Detection: Durbin-Watson d - test

Errors checking4

Autocorrelation:

• Detection: Durbin-Watson d - test- Step 1: Identify Ho and Ha:

Ho: no autocorrelation

Ha: positive correlation

- Step 2: D= 0.518

- Step 3: Significance level: α = 5%

- Step 4: Decision rule

With k’ = number of slope coefficients = 2 and n = 60

=> DL = 1.514 and DU = 1.652

D=0.518< DL = 1.514 => reject Ho => Positive autocorrelation exists

Errors checking4

Autocorrelation:

• Remedy: adding AR(1)

Conclusion5

The regression model for the petrol price:

LnPP^ = 7.5371+ 0.045*CRP + 9.64E-05*EX

Limitation:

• Auto-correlation error

• Other determinant: government subsidies

ReferencesAl-Gudhea, S., Kenc, T., & Dibooglu, S. (2006). Do retail gasoline price rise more readily than they fall?

Bang tong hop gia ban le xang dau tu nam 2005 den nay. (2014, 04 22). Retrieved 05 08, 2014, from

Xangdau.net: http://xangdau.net/thong-tin-chung/gia-ban-le/lich-su-gia-ban-le/bang-tong-hop-gia-ban-le-

xang-tu-nam-2005-den-nay-32.html

Global Economic Monitor(GEM) Commodities. (2014, 03 04). Retrieved 05 08, 2014, from World

Databank: http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?

source=global-economic-monitor-(gem)-commodities#s_p

Inflation in Vietnam. (2013, 03). Retrieved 05 08, 2014, from VietnamReport: http://www.vietnam-

report.com/inflation-in-vietnam/

Mankiw, N. G. (2008). Principles of Economics. South-Western Cengage Learning.

Petrol Price Explained. (2009, 2 10). Retrieved 05 08, 2014, from FuelWatch:

http://www.fuelwatch.wa.gov.au/info/dsp_petrol_prices.cfm

Valadkhani, A., & Mitchell, W. F. (2002, December 18). Australian Economic Review. Assessing the

Impact of Changes in Petroleum Prices on Inflation and Household Expenditures in Australia , pp. 122-

132.

Vietnam Economics Statistics. (2014, 05 08). Retrieved 05 08, 2014, from Vietnam Economics

Statistics: https://docs.google.com/spreadsheet/pub?

key=0ArF6NpLwejicdFhKbm85RnFlcXRBbF95emlEQTU3dXc&output=html

Thank you for your attention!

Q & A