The aim of this assignment is to estimate the aggregate savings function in USA, using macroeconomic data.
Introduction
This project puts forth the estimation of the aggregate savings function for the macroeconomic data for U.S.A from year 1949 to 2009.this is a time series data set. The project will estimate using the linear and log- linear models to help test the violations of the classical assumptions and drawing conclusions. These papers expectations of the coefficient signs of model one, which is the linear model.
The variables being used to help estimate the aggregate savings function is the Nominal Gross domestic product (gdp), the interest rate and the inflation rate. The relationships between the aggregate savings are positively related for the nominal gdp and interest rate, meaning an increase in the nominal gdp and interest rate will cause an increase in savings. The relationship between aggregate savings and inflation rate are negatively related, meaning an increase in the inflation rate will cause a decrease in savings. The aggregate savings is the independent variable while the other variables are the dependant variables.
Savings is positively correlated to nominal gdp because as the nominal gdp is increasing, income is increasing which means people have more money and therefore the level of savings increases. The higher the level of income that a person has, the more likely it is that they would put aside more money to save.
Savings is also positively correlated to the interest rate. This is because a higher interest rate means that people would receive a higher return by leaving money the bank. If interest rates increase, it is more beneficial to save because the return would be more appealing than taking on a risky investment.
Savings is negatively correlated to the inflation rate. This is because a higher inflation rate increases the rate at which money is devalued. People would save less and spend their money quicker if the...