ECONOMETRICS PROJECT
INFLUENCE OF INFLATION RATE
AND CONSUMER EXPENDITURE
ON GDP OF ROMANIA
I.
Data
The data is collected over a period of 15 years, starting with 2002 and up to and
including 2016. The dependent variable (y) is GDP and the independent
variables xl and x2 are the inflation rate and the average monthly income per
household
Source: National Institute of Statistics
I.1. Graph evolution GDP / years (dependency variable):
Chart 1: Year-on-year GDP evolution - Graph tablework
I.2. Graph inflation rate evolution / years (independent variable):
Chart 2: Inflation Rate / Year - Graph Table Processing
I.3. Chart average monthly income per household / years (independent
variable):
Chart 3: Monthly average revenue per year - Graph tablework
II.
Motivation to choose the theme:
Through this project we aim to analyze the link between the gross domestic
product at the level of Romania taking into account the monthly average
income per household (at the level of the year) and the inflation rate. We chose
this theme to highlight the influence of wage growth over the past few years on
GDP and also the reverse relationship between GDP and the inflation rate (the
higher the GDP is, the lower the inflation rate).
III.
Analysis of the economic evolution between the three variables using
the correlation coefficient and the Scatter graph:
The intensity of the link between inflation rate and GDP
Inflation rate on GDP
The correlation coefficient is = -0.889, the link between inflation rate and GDP
is reversed, when inflation falls, GDP is rising.
Intensity of the link between monthly average income per household and GDP
Average monthly GDP revenue
The correlation coefficient is = 0.979, the link between inflation rate and GDP is
straightforward, so when the average monthly income per household grows,
GDP rises.
IV.
Simple regression
yi = a + bxi
The estimated regression line is y = -52117.54 + 250.566 * x1
The default error is: 30803.41592 and 14.43101158
Statistics t: -1.6919 and 17.36
Probability: 0.11 and 2.24
The multiple correlation coefficient R = 0.979 and shows that there is a direct
and strong link between the two variables. The coefficient of determination R2
= 0.958 shows that GDP is influenced by 95.8%, which means that the average
monthly income is representative of GDP.
Interpretation of parameters: The value of the coefficient b = 250.566 measures
the slope of the regression line and shows that when x increases by one unit, the
GDP will increase by 250.566.
The value a = -52117.54 shows the level of GDP when the monthly average
revenue is 0.
Testing the validity of the model
Hypotheses:
Ho: The model is not valid (MSR = MSE) Hi: The model is valid (MSR> MSE)
According to the ANOVA F test calculated = 301 and F table = F 0.05;
We dismiss HO, we accept H1 (Fcalculat> Ft)
Waste Analysis:
Se = standard error
Ft = t 2; 13 = t0.025,12 = 2.160
Se = 42090
The range [-Ft * SE; Ft * SE]
Interval [-90914.4; 90914.4]
Waste
The points on the graph fall between the two boundaries of the range (marked
with blue lines) so as to respect the normality assumptions of the errors, the
errors from a normal distribution.
V.
Multiple Regression:
Y = b0 + b1x1 + b2x2 + E
Date:
bo = 44038 (GDP value when x1 and x2 are 0) b1 = -47447
b2 = 219
=>y = x1 + 219 * 44038-4747 * x2
The value of the coefficient bi = -4747 <0, shows that an increase in inflation
with one unit leads to a decrease in GDP by 4747 which shows that between
GDP and inflation there is an indirect link.
The value of the coefficient b2 = 219 shows that an increase of the average
monthly income per household with one unit leads to the increase of the GDP
by 219 thousand lei.
The coefficient of determination R2 = 0.96 shows that 96% of GDP is
influenced by the two exogenous variables.
The coefficient R = 0.98 shows that there is a strong linear link between the
three variables.
Testing the validity of the model:
Ho: Bi = 0 H: Bi <> 0
T state b1 = - 1.237 P value = 0.24> a = 0.05 => accept HO, which means that
the inflation rate does not have a significant influence on GDP T state b2 = 7.6
P value = 0.00 <a> 0.05 = which means that the average monthly income has a
significant influence on GDP
Waste Analysis:
Durbin – Watson:
d1 = 0.95
d2 = 1.54
DW = 0.70 and falls within the range [O; d1], that is, [0; 0.95] which means a
positive autocorrelation of errors.
VI.
Conclusions
Between the gross domestic product and the average monthly income per
household (in 20022016), there is a direct relationship. There is also a reverse
relationship between inflation and GDP. It can be noticed that during the
analyzed period, the inflation rate decreased simultaneously with the increase of
the average household income stimulating the consumption of the population,
which represented an effective way of GDP growth. When the inflation rate
decreases and the purchasing power increases, the individual tends to buy more.
By using linear linear regression, we can see the existence of a strong link
between Gross Domestic Product and the inflated rate of inflation. During the
analyzed period, it is noted that in the years 2002 - 2006 the inflation rate
peaked (relative to the analyzed period) having a negative impact on GDP by
reducing it.