2. Open the Excel file ceosal1.

xls (available from Surrey Learn) containing a data on chief

executive officers (CEOs) salaries (variable salary) and firms sales (variable sales) and read it
into EViews.
a) Calculate the mean and variance of salary and sales.
SALARY SALES
Mean 1281.120 6923.793
Median 1039.000 3705.200
Maximum 14822.00 97649.90
Minimum 223.0000 175.2000
Std. Dev. 1372.345 10633.27
Skewness 6.854923 4.999125
Kurtosis 60.54128 35.29968

Jarque-Bera 30470.10 9955.666

Probability 0.000000 0.000000

Sum 267754.0 1447073.

Sum Sq. Dev. 3.92E+08 2.35E+10

Observations 209 209

Variance of Salary: Variance(Salary) =

b) Create a scatter graph of salary against sales. What can you say about this relationship?

The scatter diagram shows that If the salary more than 2,000, and sales 20,000, There is very few
numbers of salary and sales. It could be influence for the low correlation as they are likely to be
outlier in the existing sample size.

c) Calculate the correlation coefficient between salary and sales. Interpret it.
Covariance Analysis: Ordinary
Date: 10/15/17 Time: 12:21
Sample: 1 209
Included observations: 209

Correlation
t-Statistic
Probability SALARY SALES
SALARY 1.000000
-----
-----

SALES 0.119869 1.000000

1.737147 -----
0.0838 -----

The correlation between Salary and Sales is 0.1199. It is very low correlation. But It is 8%
significant that means There is no relation at 5% and 1% significance level.

d) Regress salary on sales and interpret the estimated coefficients (assume both variables are
measured in $0s).
Dependent Variable: SALARY
Method: Least Squares
Date: 10/15/17 Time: 12:30
Sample: 1 209
Included observations: 209

Variable Coefficient Std. Error t-Statistic Prob.

SALES 0.015471 0.008906 1.737147 0.0838

C 1174.005 112.8127 10.40667 0.0000

R-squared 0.014369 Mean dependent var 1281.120

Adjusted R-squared 0.009607 S.D. dependent var 1372.345
S.E. of regression 1365.737 Akaike info criterion 17.28630
Sum squared resid 3.86E+08 Schwarz criterion 17.31828
Log likelihood -1804.418 Hannan-Quinn criter. 17.29923
F-statistic 3.017680 Durbin-Watson stat 2.082065
Prob(F-statistic) 0.083849

If the sales is increased by one unit, then Salary will be increased by 0.015. But There is no
significance relation between Salary and Sales at 5% and 1% level. But It is significance relation
at 10%.
e) How well does the model fit the data?
obs Actual Fitted Residual Residual Plot
1 1095 1600.914124971653 -505.9141249716526 | .*. |
2 1001 1328.060400940813 -327.0604009408127 | .*. |
3 1122 1268.775784367447 -146.7757843674469 | .*. |
4 578 1425.339088739527 -847.3390887395269 | *|. |
5 1368 1511.00249110595 -143.0024911059495 | .*. |
6 1145 1267.159114062904 -122.1591140629041 | .*. |
7 1078 1209.071918718137 -131.0719187181367 | .*. |
8 1094 1219.902837742906 -125.9028377429063 | .*. |
9 1237 1244.7082865766 -7.708286576600131 | .*. |
10 833 1217.786468588835 -384.7864685888352 | .*. |
11 567 1183.237682523381 -616.2376825233815 | *|. |
12 933 1479.903645334003 -546.903645334003 | *|. |
13 1339 1793.553154944552 -454.5531549445517 | .*. |
14 937 1212.894688001682 -275.8946880016822 | .*. |
15 2011 1198.45758899108 812.5424110089195 | .|* |
16 1585 1278.492825287651 306.5071747123488 | .*. |
17 905 1190.501096941148 -285.501096941148 | .*. |
18 1058 1223.509015840246 -165.5090158402462 | .*. |
19 922 1196.478907924855 -274.4789079248553 | .*. |
20 1220 1313.16228129225 -93.1622812922501 | .*. |
21 1022 1192.759794208739 -170.7597942087391 | .*. |
22 759 1217.696738763904 -458.6967387639038 | .*. |
23 1414 1291.905774130126 122.0942258698735 | .*. |
24 1041 1242.358307143376 -201.3583071433762 | .*. |
25 1688 1364.957613154543 323.0423868454575 | .*. |
26 2983 2066.06652733233 916.9334726676702 | .|* |
27 1160 1240.832919004466 -80.83291900446626 | .*. |
28 3844 1492.759655124195 2351.240344875804 | .|.* |
29 476 1183.462005197218 -707.4620051972177 | *|. |
30 1492 1366.329852118838 125.6701478811619 | .*. |
31 1024 1300.383624148208 -276.3836241482078 | .*. |
32 1593 1493.61053423185 99.38946576815034 | .*. |
33 427 1221.53188522623 -794.5318852262302 | *|. |
34 829 1199.826730827942 -370.8267308279422 | .*. |
35 797 1211.152704899582 -414.1527048995819 | .*. |
36 577 1221.090975143173 -644.0909751431732 | *|. |
37 1342 1270.265600864685 71.73439913531524 | .*. |
38 1774 1293.559572194028 480.4404278059724 | .*. |
39 709 1185.135916648761 -476.1359166487611 | .*. |
40 860 1234.669457893013 -374.6694578930134 | .*. |
41 1336 1253.756997612477 82.24300238752267 | .*. |
42 516 1184.048338632736 -668.048338632736 | *|. |
43 931 1342.401581537093 -411.4015815370926 | .*. |
44 815 1199.560638480582 -384.5606384805819 | .*. |
45 1681 1373.806755874146 307.1932441258543 | .*. |
46 568 1350.925843142864 -782.9258431428642 | *|. |
47 775 1208.199382380354 -433.1993823803543 | .*. |
48 1188 1231.830615779294 -43.83061577929447 | .*. |
49 782 1204.585465241415 -422.5854652414149 | .*. |
50 1170 1213.856954164396 -43.85695416439603 | .*. |
51 1469 1271.609988343984 197.3900116560155 | .*. |
52 916 1219.495962068759 -303.4959620687586 | .*. |
53 1070 1190.598560142202 -120.5985601422021 | .*. |
54 894 1197.736662706658 -303.7366627066575 | .*. |
55 829 1207.402650125005 -378.4026501250055 | .*. |
56 780 1200.861709611133 -420.8617096111327 | .*. |
57 2327 1229.680212216314 1097.319787783686 | .|* |
58 717 1195.874010609658 -478.8740106096579 | .*. |
59 1368 1383.444895584483 -15.44489558448277 | .*. |
60 2028 2241.749857269066 -213.7498572690663 | .*. |
61 1195 1271.237147078746 -76.2371470787457 | .*. |
62 256 1182.147010212661 -926.1470102126613 | *|. |
63 775 1223.442495586145 -448.4424955861446 | .*. |
64 1407 1216.746849779971 190.253150220029 | .*. |
65 543 1202.982718790877 -659.9827187908774 | *|. |
66 874 1245.913439292829 -371.9134392928293 | .*. |
67 1287 1436.24581184673 -149.24581184673 | .*. |
68 1248 1228.258468313879 19.74153168612065 | .*. |
 69 875 1256.510751815431 -381.5107518154308 | .*. |
70 925 1224.9988285605 -299.9988285604994 | .*. |
71 798 1213.980718398237 -415.9807183982367 | .*. |
72 760 1186.913480834995 -426.9134808349952 | .*. |
73 600 1236.949812390733 -636.9498123907326 | *|. |
74 991 1212.968947297384 -221.9689472973835 | .*. |
75 1570 1335.903959260461 234.0960407395391 | .*. |
76 911 1215.503016963682 -304.5030169636823 | .*. |
77 1360 1215.592746788614 144.4072532113864 | .*. |
78 700 1277.383585320267 -577.383585320267 | *|. |
79 741 1249.499504946773 -508.499504946773 | .*. |
80 1097 1216.890726457208 -119.8907264572076 | .*. |
81 953 1194.432158040812 -241.4321580408118 | .*. |
82 441 1226.736169748434 -785.7361697484339 | *|. |
83 595 1203.703645075301 -608.7036450753006 | *|. |
84 1067 1468.262072088371 -401.2620720883711 | .*. |
85 1298 1247.927697666203 50.07230233379664 | .*. |
86 1798 1550.433788093917 247.5662119060832 | .*. |
87 4143 1215.441134846762 2927.558865153238 | .|. * |
88 1336 1243.32831234769 92.6716876523103 | .*. |
89 1750 1405.012354340955 344.9876456590446 | .*. |
90 912 1214.636667326798 -302.636667326798 | .*. |
91 1892 1215.148743355107 676.8512566448926 | .|* |
92 833 1190.607842082042 -357.6078420820418 | .*. |
93 1142 1213.877066607792 -71.87706660779213 | .*. |
94 1159 1240.432226254232 -81.43222625423187 | .*. |
95 1283 1455.011563802811 -172.0115638028116 | .*. |
96 2109 1327.850007786459 781.1499922135408 | .|* |
97 1039 1370.774532145051 -331.7745321450509 | .*. |
98 992 1203.887744750837 -211.8877447508369 | .*. |
99 1253 1220.311258203787 32.68874179621343 | .*. |
100 721 1206.913779890541 -485.9137798905413 | .*. |
101 1351 1239.165191421082 111.8348085789175 | .*. |
102 1391 1305.343469776195 85.65653022380547 | .*. |
103 1245 1363.0980525195 -118.0980525194998 | .*. |
104 1550 1347.482109379425 202.5178906205751 | .*. |
105 2150 1264.810690747366 885.1893092526339 | .|* |
106 1846 1269.826231791375 576.1737682086248 | .|* |
107 573 1221.239489957591 -648.2394899575911 | *|. |
108 6640 1312.404225359976 5327.595774640023 | .|. * |
109 959 1236.586254953826 -277.5862549538258 | .*. |
110 612 1229.991167587648 -617.9911675876478 | *|. |
111 1820 1201.791488040162 618.2085119598382 | .|* |
112 1411 1277.705376860634 133.2946231393657 | .*. |
113 1026 1207.580561211151 -181.5805612111514 | .*. |
114 1287 1246.314124489094 40.68587551090582 | .*. |
115 800 1226.171495431536 -426.1714954315361 | .*. |
116 1115 1300.94056320049 -185.9405632004905 | .*. |
117 1631 1245.43230432298 385.5676956770201 | .*. |
118 1910 1281.741636425967 628.258363574033 | .|* |
119 996 1276.466185958511 -280.4661859585112 | .*. |
120 918 1634.980230336279 -716.9802303362787 | *|. |
121 1261 1254.846121359481 6.153878640519224 | .*. |
122 1053 1230.302126735966 -177.3021267359662 | .*. |
123 1221 2684.70047895896 -1463.700478958961 | *|. |
124 1738 1340.214042660785 397.7859573392155 | .*. |
125 3142 1332.365846203955 1809.634153796045 | .|.* |
126 1900 1449.422049505634 450.5779504943658 | .*. |
127 427 1269.283222258575 -842.283222258575 | *|. |
128 1700 1278.820803528916 421.1791964710835 | .*. |
129 360 1178.625918137594 -818.6259181375946 | *|. |
130 459 1186.153877283251 -727.1538772832507 | *|. |
131 1340 1195.177836794305 144.8221632056955 | .*. |
132 729 1205.968532820774 -476.9685328207745 | .*. |
133 223 1176.812771922981 -953.8127719229806 | *|. |
134 2101 1333.351321937499 767.6486780625014 | .|* |
135 1082 1347.769855179929 -265.7698551799287 | .*. |
136 1781 1254.321671929375 526.6783280706247 | .|* |
137 791 1189.114936955586 -398.1149369555857 | .*. |
138 2092 1292.687035856245 799.3129641437547 | .|* |
139 1573 1273.109081115585 299.8909188844152 | .*. |
140 1045 1219.13859133275 -174.1385913327499 | .*. |
141 1694 1225.411890935545 468.5881090644546 | .*. |
142 453 1176.715307541619 -723.7153075416187 | *|. |
143 1130 1200.092825063795 -70.09282506379486 | .*. |
144 1334 1181.958269567205 152.0417304327948 | .*. |
145 1344 1220.922344108375 123.0776558916255 | .*. |
146 1585 1246.513692805368 338.4863071946315 | .*. |
147 1946 1303.773211059342 642.226788940658 | .|* |
148 1619 1292.088323353454 326.9116766465463 | .*. |
149 1620 1444.024406029963 175.9755939700372 | .*. |
150 967 1263.441548910504 -296.4415489105046 | .*. |
151 1431 1280.692737565756 150.3072624342444 | .*. |
152 1231 1274.611271014619 -43.61127101461898 | .*. |
153 770 1216.016641555708 -446.0166415557085 | .*. |
154 1594 1216.732924037473 377.2670759625269 | .*. |
155 1568 1254.163869509641 313.8361304903592 | .*. |
156 995 1194.472381039111 -199.4723810391116 | .*. |
157 1077 1255.936793670201 -178.9367936702012 | .*. |
158 1161 1285.036859151973 -124.036859151973 | .*. |
159 1401 1362.490063742346 38.50993625765432 | .*. |
160 1127 1295.65737746842 -168.6573774684198 | .*. |
161 3068 1233.188929001092 1834.811070998907 | .|.* |
162 730 1191.186440252945 -461.186440252945 | .*. |
163 729 1195.529018940922 -466.5290189409226 | .*. |
164 11233 1267.569083087501 9965.4309169125 | .|. * |
165 949 1466.521637549988 -517.5216375499877 | .*. |
166 3646 1234.672551243463 2411.327448756537 | .|.* |
167 1502 1227.436985477953 274.5630145220468 | .*. |
168 807 1198.115690672794 -391.1156906727943 | .*. |
169 713 1188.899896221589 -475.8998962215892 | .*. |
170 1489 1573.887110406711 -84.88711040671091 | .*. |
171 736 1183.774510076514 -447.7745100765144 | .*. |
172 1226 1200.751869231298 25.24813076870237 | .*. |
173 543 1215.300355296959 -672.300355296959 | *|. |
174 14822 1207.408836825904 13614.5911631741 | .|. *|
175 890 1214.423177045011 -324.4231770450107 | .*. |
176 1627 1301.950785737627 325.0492142623732 | .*. |
177 2408 1859.705137932354 548.2948620676457 | .|* |
178 2248 1185.83518475881 1062.16481524119 | .|* |
179 787 1253.948830664136 -466.9488306641365 | .*. |
180 474 1207.41038538962 -733.4103853896205 | *|. |
181 439 1214.492794426546 -775.4927944265459 | *|. |
182 465 1210.634442170374 -745.6344421703742 | *|. |
 183 594 1216.456003075049 -622.4560030750488 | *|. |
184 688 1210.482830228523 -522.4828302285227 | .*. |
185 607 1255.410795676379 -648.4107956763786 | *|. |
186 634 1262.788689555408 -628.7886895554077 | *|. |
187 532 1216.00580916366 -684.0058091636597 | *|. |
188 441 1225.161269117415 -784.1612691174152 | *|. |
189 694 1228.654515372963 -534.6545153729633 | *|. |
190 520 1230.959624228244 -710.9596242282444 | *|. |
191 757 1235.610066825599 -478.610066825599 | .*. |
192 668 1220.354576441028 -552.3545764410278 | *|. |
193 803 1238.650025819309 -435.6500258193088 | .*. |
194 500 1214.480417247765 -714.480417247765 | *|. |
195 552 1205.943778463213 -653.9437784632126 | *|. |
196 412 1208.434533669255 -796.4345336692546 | *|. |
197 1100 1320.512323686283 -220.5123236862835 | .*. |
198 959 1232.532976295546 -273.5329762955461 | .*. |
199 333 1210.959323284206 -877.9593232842059 | *|. |
200 503 1231.3262750156 -728.3262750156002 | *|. |
201 448 1195.844616226422 -747.8446162264222 | *|. |
202 732 1248.264959735801 -516.2649597358006 | .*. |
203 720 1201.417101988191 -481.4171019881909 | .*. |
204 808 1285.36947553042 -477.3694755304197 | .*. |
205 930 1197.35144615113 -267.3514461511301 | .*. |
206 525 1190.977588108339 -665.977588108339 | *|. |
207 658 1244.281298459056 -586.2812984590562 | *|. |
208 555 1205.301751500164 -650.3017515001644 | *|. |
209 626 1196.321109282106 -570.3211092821056 | *|. |

If We see the individuals level of each observation. Most of them are over fitted (Actual value is
greater than fitted value) or under fitted (Actual value is less than fitted value).
3. Download the UK cons.WF1 from SurreyLearn and read it into EViews. This file contains
quarterly observations on: Cons (Real total consumers' expenditure) and Income (Real
disposable income).
a) Estimate the model:
Const = β 0 + β 1 Incomet +ut
From your estimated model, obtain an estimate of the marginal propensity to consume and
interpret it.
Dependent Variable: CONS
Method: Least Squares
Date: 10/15/17 Time: 12:59
Sample (adjusted): 1983Q1 1990Q2
Included observations: 30 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 206.0059 40.36233 5.103917 0.0000

INCOME 0.465140 0.095710 4.859875 0.0000

R-squared 0.457558 Mean dependent var 402.1483

Adjusted R-squared 0.438185 S.D. dependent var 3.454344
S.E. of regression 2.589181 Akaike info criterion 4.804900
Sum squared resid 187.7080 Schwarz criterion 4.898314
Log likelihood -70.07351 Hannan-Quinn criter. 4.834784
F-statistic 23.61838 Durbin-Watson stat 0.317289
Prob(F-statistic) 0.000041

The marginal propensity to consume is 0.4651. That means, If Income increase by one unit then consumption will increase by
0.4651.

b) Obtain the R2 of the regression and interpret it.

R-squre is a goodness-of-fit measure for linear regression models. This statistic indicates the
percentage of the variance in the dependent (Cons) variable that the independent (Income)
variables explain collectively.
2
R =¿0.457558. That mean income can influence to consumption by 0.457558.

c) Carry out a test of the hypothesis H 0 : β 1=0 against the alternative H 0 : β 1≠0. (5% significance
level)

Ho: β 1=0
Ha: β 1 ≠ 0

The t statistic is based on whether the estimated difference

^β −β
1 1
t=
^
Se ( β ¿ ¿ 1)¿
 0.4651−0
= =4.8599
0.0957

❑
Decision rule: Reject H 0 if t = 4.8599> t 0.975 ,(30−2)=2.048

Decision: Reject H 0 as test statistics (4.8599) is greater than the critical value (2.048 ¿.
Conclusion: At the 2.5% significance level there is evidence that there is significant relationship
between Cons and Income.