Econometrics Project- Tax income in the United State and United Dissertation

Econometrics Project- Tax income in the United State and United Kingdom - Dissertation Example Strong support for Keynesian model in US data. Insignificant coefficient of interest rate in UK data. Unit root test of residuals indicate possibility of these being spurious. Engel and Granger (1987) error correction model pursued to utilize co-integrated nature of data. Only the dynamics of output seems to matter for growth in investment. Interest rate changes does not have any significant impacts. Accelerator model performs substantially better in both economies. However, unit root tests reveal these results may be spurious. Null hypothesis of non-cointegration could not be rejected. So, we could not proceed with Engel and Granger error correction methodology. Instead ran regressions in differences. The growth in lagged real output turns out to be significant for growth in investment. There is a direct relation. ... Further, any model is yet to be convincingly validated empirically. However, till date the best performance in terms of fitting the data is credited to the actual and variants of the acceleration principle. The objective of the present paper is to utilize co-integration techniques to estimate a particular model of investment. In particular we are interested in exploring the empirical validity of the acceleration principle. The fundamental contribution of this paper is two fold. First, we shall utilize co-integrated nature of the data. Additionally, we shall use this model to examine the similarities and dissimilarities in US and UK investment trajectories and its determinants. Since investment is a key macro economic variable for growth and development, the inherent motivation is to derive instructive results that are relevant to macro-economic policy formulation. The paper is structured as follows: in section 1 we do a literature review of the theories and empirical work on investme nt. In particular we initiate the discussion by looking at the Keynesian ideas regarding investment. Then we shall look at the advances in the literature since then. In the subsequent sections we shall evaluate the performance of the models in regards to US data and then UK data using co-integration, error correction and differencing techniques. Finally, the last section will summarize the findings and conclude. Â   2. literature review The central feature of the neoclassical renaissance post 1870 was the distribution theory based upon marginalist principles (Fisher, 1930; Marshall, 1890; Walras, 1874). Essentially the theory implies a negatively sloped demand for capital. The idea was that entrepreneurs would go on