* Long-Run Marginal Propencity to Consume * * Keywords: * regression, ols, log, consumption function, distributed lag, F-test, MPC, * marginal propencity to consume, long-run * * Description: * We illustrate how to estimate a Distributed Lag OLS Model for Comsumption * Function and test the hypothesis on the long-run Marginal Propencity to * Consume * * Author(s): * Noel Roy * Skif Pankov * * Source: * William H. Greene, Econometric Analysis - 7th Edition * Pearson International Edition, Chapter 5, Example 5.6 (page 172) * * Setting the first time period to be equal to year 1950 with periodicity of * one quarter time 1950.1 4 sample 1950.1 2000.4 * Reading the datafile and naming the variables, specifying to ignore the * first line of the file read (TableF5-2.shd) year qtr realgdp realcons realinvs realgovt realdpi / skiplines=1 * drop beginning observation to obtained lagged consumption. genr lnc=log(realcons) genr lny=log(realdpi) sample 1950.2 2000.4 genr lnclag=lag(lnc) ols lnc lny lnclag /pcov * a test command of the null hypothesis that the long-run mpc * is unity, also gives us the value and standard error of the * long-run mpc. test lny/(1-lnclag)=1 * we can also use a linear test. test lny+lnclag=1 * repeat the exercise for the final 11 years. sample 1990.1 2000.4 ols lnc lny lnclag test lny/(1-lnclag)=1 test lny+lnclag=1 stop