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Econ 240 C PowerPoint Presentation

Econ 240 C

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Econ 240 C

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  1. Econ 240 C Lecture 12

  2. The Big Picture • Exploring alternative perspectives • Exploratory Data Analysis • Looking at components • Trend analysis • Forecasting long term • Distributed lags • Forecasting short term

  3. The story based on a bivariate distributed lag model 07-08

  4. Another Story Based On a Univariate ARIMA Model

  5. Part I. CA Budget Crisis

  6. CA Budget Crisis • What is Happening to UC? • UC Budget from the state General Fund

  7. UC Budget • Econ 240A Lab Four • New data for Fiscal Year 2005-06 • Governor’s Budget Summary 2005-06 • released January 2005 • http://www.dof.ca.gov/

  8. CA Budget Crisis • What is happening to the CA economy? • CA personal income

  9. CA Budget Crisis • How is UC faring relative to the CA economy?

  10. CA Budget Crisis • What is happening to CA state Government? • General Fund Expenditures?

  11. CA Budget Crisis • How is CA state government General Fund expenditure faring relative to the CA economy?

  12. Long Run Pattern Analysis • Make use of definitions: • UCBudget = (UCBudget/CA Gen Fnd Exp)*(CA Gen Fnd Exp/CA Pers Inc)* CA Pers Inc • UC Budget = UC Budget Share*Relative Size of CA Government*CA Pers Inc

  13. What has happened to UC’s Share of CA General Fund Expenditures? • UC Budget Share = (UC Budget/CA Gen Fnd Exp)

  14. UC Budget Crisis • UC’s Budget Share goes down about one tenth of one per cent per year • will the legislature continue to lower UC’s share? • Probably, since competing constituencies such as prisons, health and K-12 will continue to lobby the legislature.

  15. What has happened to the size of California Government Expenditure Relative to Personal Income? • Relative Size of CA Government = (CA Gen Fnd Exp/CA Pers Inc)

  16. California Political History • Proposition 13 • approximately 2/3 of CA voters passed Prop. 13 on June 6, 1978 reducing property tax and shifting fiscal responsibility from the local to state level • Gann Inititiative (Prop 4) • In November 1979, the Gann initiative was passed by the voters, limits real per capita government expenditures

  17. CA Budget Crisis • Estimate of the relative size of the CA government: 6.50 % • Estimate of UC’s Budget Share: 3.25%

  18. CA Budget Crisis: Pattern Estimate of UC Budget • UC Budget = UC Budget Share*Relative Size of CA Government*CA Pers Inc • Political trends estimate • UC Budget = 0.0325*.065*1324.1 $B =$ 2.80 B estimate • Governor’s proposal in January: $ 2.81 B

  19. Econometric Estimates of UCBUD • Linear trend • Exponential trend • Linear dependence on CAPY • Constant elasticity of CAPY

  20. Econometric Estimates • Linear Trend Estimate • UCBUDB(t) = a + b*t +e(t) • about 3.0 B • Too optimistic

  21. Econometric Estimates • Logarithmic (exponential trend) • lnUCBUDB = a + b*t +e(t) • simple exponential trend will over-estimate UC Budget by far

  22. Econometric Estimate • Dependence of UC Budget on CA Personal Income • UCBUDB(t) = a + b*CAPY(t) + e(t) • looks like a linear dependence on income will overestimate the UC Budget for 2005-06

  23. Econometric Estimates • How about a log-log relationship • lnUCBUDB(t) = a + b*lnCAPY(t) + e(t) • Estimated elasticity 0.847 • autocorrelated residual • fitted lnUCBUDB(2005-06) = 1.24886 • $3.49 B • actual (Governor’s Proposal) = 1.03816 • $2.81B

  24. Econometric Estimates • Try a distributed lag Model of lnUCBUDB(t) on lnCAPY(t) • clearly lnUCBUDB(t) is trended (evolutionary) so difference to get fractional changes in UC Budget • likewise, need to difference the log of personal income

  25. Identify dlnucbud