Macroeconomics Theory and Policy (ECO202)

Macroeconomics Theory and Policy (ECO202)

The purpose of this assignment is to estimate the Phillips curve and Okun’s Law for the country of your choice and write a well-structured research report about the whole process of acquiring and refining your date, estimating, interpreting the coefficients, and discussing the theoretical background of your models and empirical implications of the estimated equations for the country of your study.

In order to help you, your article should include, among other things, following steps. Please note that your final paper must have a complete structure from introduction to conclusion and references with an internal coherence. These steps are just to help you to organize your paper, and not to be treated like questions to get your answer mechanically.

1- Choose a period time not shorter than 20 years and as recent as possible. For each year, find the following time series data for your country from reputable sources: Inflation rate, unemployment rate, and real GDP (in terms of local currency). A description of the used data sources should be included.

2- Present the data in form of tables and graphs that you think are informative for your audience. Discuss the sources of your data, nature of the data and the assumptions that you may use to construct the needed data. (10 points)

3- You can use LINEST function in MS Excel spreadsheet to estimate a and b coefficients in a different version of the Philips Curve in an equation like this (Note: instead of unemployment we have real output in this version of Phillips curve, so b must turn out to be positive, not negative)    t t 1 Yt     a  b 

4- Using algebra, change the estimated equation in to standard Phillips Curve like below to find α and natural level of output for your country (Note that I used Y instead of u in this version of the Philips Curve): Y Y