Econ Project                               ~ $ ~                                Ray Butler

~ Correlations & Connections ~

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PART I.
(20 Points)


(1) Select your Data:

Browse the Data You need to choose two data time series that you would like to analyze. For example, I chose the Federal Funds Rate and the Unemployment Rate.

(2) Create a Chart of the Long-term View of your data:

Example I: The Interest Rate
Example II: The Unemployment Rate

This time period is determined by the data availability. For example, in my project, the series are limited to the period 1970-1999. (While GIF and PDF charts are available, the PDF chart is recommended- this allows you to create multi-series charts in 'advanced features workspace')
PRINT CHARTS for my review.
(I recommend the PDF version.)


(3) Create a Chart of the Short-term View of your data:

Example III: The Interest Rate
Example IV: The Unemployment Rate

This is the period of time that you have decided to analyze. I recommend a time period of at least ten years.
For example, I chose the period 1973-1993.
PRINT CHARTS for my review.
(I recommend the PDF version.)


(4) Create a Multi-Series Chart of your short-term data:

Example V: The Interest Rate & The Unemployment Rate

This multi-series chart will facilitate your visual inspection- remember you are looking for "correlations & connections".
PRINT CHART for my review.
(This chart must be the PDF version)



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  PART II.
(50 Points)


(1) Transform your data:

I suggest you transform both of your variables into a percentage change  form (4 periods ago for quarterly data and 12 periods ago for monthly data).   I also suggest that you lag your 'outside' variable to obtain the best fit- 'you make the call' on the degree of lag necessary.  

In my example, I decided to use a percentage change from 12 periods ago (one year) on both variables and a 18 period lag (one and a half year) of the exogenous (outside) variable- the federal funds rate.
Do NOT PRINT for my review.


(2) Create a Multi-Series Chart of your transformed short-term data:
(This chart must be a PDF version)

Example VI: The Interest Rate (%ch,lagged) & The Unemployment Rate (% ch)

This chart should contain both of your transformed variables.
PRINT CHART for my review.  


(3) Create a XY PLOT using your transformed data.

Your transformed variables will cover the long-term period- this is OK.

Example VII: The Interest Rate [X] (% ch, lagged 18 periods) / The Unemployment Rate [Y] (% ch) XY PLOT

This technique can be used to assess the nature and degree of correlation that you visually observed above.
PRINT PAGE (including regression results) for my review.


(4) Report:  Prepare a summary of your findings.  In your report, include your thoughts on how these two variables are related.  Specifically, present the theory (tell a story) that supports the relationship that you have observed, charted, and xy plotted. Your report should be typed, one to two pages in length, double spaced, 12 pt font size, 1" all margins, and a cover page of your design. Due date: last day of regular class (not final exam day)! I suggest you make a backup copy of your work for your records.


(5) Take a Break you deserve it.

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