eco presentation
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Econometrics-Oil price determinationTRANSCRIPT
Let’s go for a drive baby!Let’s walk home, it’s much more romantic!
Group Class: Tut3AC11Group members:
Nguyen Van AnhNguyen Thi HuongNguyen Thi LuongTran Thi Lan
Determinants of Petrol Price
in Vietnam
Estimating equation 2
Model specification1
Significance tests and interpretation3
Outline
Errors checking4
Conclusion5
Model specification1
Variables determination
Variables determination
Model specification1
- Input price => Product price
Crude oil Petrol
- Expected sign: (+)
10,000
12,000
14,000
16,000
18,000
20,000
22,000
20 40 60 80 100 120 140
CRP
PP
Crude oil price:
Variables determination
Model specification1
- Inflation rate = overall level price
Petrol – commodity price
- Expected sign: (+)
Inflation rate:
10,000
12,000
14,000
16,000
18,000
20,000
22,000
0 5 10 15 20 25 30
INF
PP
Variables determination
Model specification1
-Exchange rate: key determinant of International transactions
Import
Petrol
- Expected sign: (+)10,000
12,000
14,000
16,000
18,000
20,000
22,000
15,000 16,000 17,000 18,000 19,000 20,000 21,000
EX
PP
Exchange rate:
Data
Model specification1
- Time-series: 2007 - 2011
- Descriptive statistics:
Crude oil price
(USD/Barrel)
Inflation rate
(%)
Exchange rate
(USD/VND)
Petrol Price
(VND/Liter)
Mean 81.563 13.249 17761.317 15416.500
Standard
deviation21.016 7.385 1698.164 3386.088
Variance 441.663 54.540 2883760.152 11465589.237
Estimating equation 2
1 2 3 4* * *PP CRP INF EX
Regression model:
Model R-squared CV
Lin - Lin 0.9066 0.0689
Log - Lin 0.8750 0.000832
Lin - Log 0.9051 0.0694
Log - Log 0.8837 0.008032
Choosing the best fitted model:lnPP^ = 7.5436 +0.00435*CRP + 0.000925*INF + 9.62E-05*EX
Significance tests and interpretation3
Significance test:
Overall significant (F-test)
Individual partial significance (t-test):
• , , : statistically significant
• : statistically insignificant
1
2
4
3
Dropping - Significance test (F-test):
• is irrelevant to the model = > Drop
3
3
3
New model:
Ln PP^ = 7.5371+ 0.0045*CRP + 9.64E-05*EX
Significance tests and interpretation3
Interpretation of fitness of model:
R2 = 0.87: 87% of variation in PP explained by variation
in CRP & EX
Interpretation of coefficients:
• = 7.5471: median monthly petrol price is $1601.99
when CRP=0, EX=0
• = 0.0045: $1 in CRP => 0.45% in PP
• = 9.64E-05: 1 unit in EX => 0.00964% in PP
1
2
3
Errors checking4
Multicollinearity:
•
• ↑ => ↓ t-stat => probability to make type II error
• Detection: VIF – variance inflating factor
100486.11
)215332.0(12
VIF
=> No multicollinearity in the model
Errors checking4
Heteroscedasticity:
• Var (ui/Xi) = (σi)^2
• OLS estimators: no longer BLUE
F & t-stats are unreliable (RSS & SEE)
• Detection: White heteroscedasticity test ( with cross term)- Step 1: Ho: homoscedasticity
Ha: heteroscedasticity - Step 2: Run the auxiliary regression using Eview Obtain W = n*R2 (R2 of the new model)- Step 3: α = 5%- Step 4: Reject Ho if W> chi-square at 5% and df=9- Step 5: W= 13.13301< 16.92
Þ Do not reject Ho => no existence of Heteroscedasticity
Errors checking4
Autocorrelation:
•
• OLS estimators: no longer BLUE
↓ t-stat => probability of type II error
F & t-stats are unreliable
• Detection: Durbin-Watson d - test
Errors checking4
Autocorrelation:
• Detection: Durbin-Watson d - test- Step 1: Identify Ho and Ha:
Ho: no autocorrelation
Ha: positive correlation
- Step 2: D= 0.518
- Step 3: Significance level: α = 5%
- Step 4: Decision rule
With k’ = number of slope coefficients = 2 and n = 60
=> DL = 1.514 and DU = 1.652
D=0.518< DL = 1.514 => reject Ho => Positive autocorrelation exists
Errors checking4
Autocorrelation:
• Remedy: adding AR(1)
Conclusion5
The regression model for the petrol price:
LnPP^ = 7.5371+ 0.045*CRP + 9.64E-05*EX
Limitation:
• Auto-correlation error
• Other determinant: government subsidies
ReferencesAl-Gudhea, S., Kenc, T., & Dibooglu, S. (2006). Do retail gasoline price rise more readily than they fall?
Bang tong hop gia ban le xang dau tu nam 2005 den nay. (2014, 04 22). Retrieved 05 08, 2014, from
Xangdau.net: http://xangdau.net/thong-tin-chung/gia-ban-le/lich-su-gia-ban-le/bang-tong-hop-gia-ban-le-
xang-tu-nam-2005-den-nay-32.html
Global Economic Monitor(GEM) Commodities. (2014, 03 04). Retrieved 05 08, 2014, from World
Databank: http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?
source=global-economic-monitor-(gem)-commodities#s_p
Inflation in Vietnam. (2013, 03). Retrieved 05 08, 2014, from VietnamReport: http://www.vietnam-
report.com/inflation-in-vietnam/
Mankiw, N. G. (2008). Principles of Economics. South-Western Cengage Learning.
Petrol Price Explained. (2009, 2 10). Retrieved 05 08, 2014, from FuelWatch:
http://www.fuelwatch.wa.gov.au/info/dsp_petrol_prices.cfm
Valadkhani, A., & Mitchell, W. F. (2002, December 18). Australian Economic Review. Assessing the
Impact of Changes in Petroleum Prices on Inflation and Household Expenditures in Australia , pp. 122-
132.
Vietnam Economics Statistics. (2014, 05 08). Retrieved 05 08, 2014, from Vietnam Economics
Statistics: https://docs.google.com/spreadsheet/pub?
key=0ArF6NpLwejicdFhKbm85RnFlcXRBbF95emlEQTU3dXc&output=html
Thank you for your attention!
Q & A