MGTSC 312: Lab 9

1. MGTSC 312: Lab 9 November 24, 2011 - Transformations

2. Announcements • Hw 7 is due this Friday at 11:59 p.m. DO NOT SUBMIT LATE! • Hw 8 is due on December 6 at 11:59 p.m. DO NOT SUBMIT LATE! • Lab Exam 3 is next Thursday December 1 -For coverage please see the Exam 3 materials link under “Exams and Quizzes” MGTSC 312: Lab 9 - Loglinear Model

3. Agenda • Evaluation Survey • Today’s lab relates to Topic 10 • GDP data • Linear Model • LoglinearModel • Memo Formatting MGTSC 312: Lab 9 - Loglinear Model

4. Look at the Data • Canadian Gross Domestic Product (GDP) • Quarterly from 1961Q1 to 1989Q4 • Use the graph wizard to create a scattergraph • Does the graph look like a straight line? • Is there any repeating pattern? • Add a linear trendline and an exponential trendline • The exponential looks like a much better fit • The exponential corresponds to regressing the natural logarithm of GDP on Time, which is what we’re about to do MGTSC 312: Lab 9 - Loglinear Model

5. Transform the Data • Let’s create a new dependent variable for a regression, the natural log of GDP • Use Excel’s =LN() function • Create a line graph for LnGDP vs. year/quarter • Does it look like a straight line? • Change the y-axis scale to use all of the available space! • We also need to change the time to just numbers, starting at 1 and counting by 1 to 116 (which is just Obs #) MGTSC 312: Lab 9 - Loglinear Model

6. Regress GDP and lnGDP on Time • Insert a new ‘Regress’ worksheet for the output • Regress lnGDP the same way and put the output beside the first • R2 and Ftest are even larger, but the scale is different so R2 is not comparable MGTSC 312: Lab 9 - Loglinear Model

7. Find the Growth Factor and Rate • The quarterly growth factor is EXP(b1) = 1.0268 • The annual growth factor is the quarterly growth factor to the power of 4 = 1.1116 • The quarterly growth rate as a percent • 100*(quarterly growth factor - 1) = 2.68% • The annual growth rate as a percent • 100*(annual growth factor - 1) = 11.16% • On average GDP increased by about 11.16% per year from 1961 through 1989 – looks pretty large compared to the last year! MGTSC 312: Lab 9 - Loglinear Model

8. Predicted GDP from Loglinear • Copy the Predicted lnGDP from the loglinear regression and paste to another sheet • Calculate the predicted GDP as =EXP(predicted lnGDP) • Beside that column, copy and paste the predicted GDP from the linear model (Note the negative values!) • Beside that column, copy and paste the actual GDP MGTSC 312: Lab 9 - Loglinear Model

9. Predicted GDP and Actual MGTSC 312: Lab 9 - Loglinear Model

10. Plot Both Predicted versus Actual • Loglinear is a much better fit for the data MGTSC 312: Lab 9 - Loglinear Model

11. Does Quarter Add Anything? • If there’s time, let’s see whether the quarter of the year makes a difference • Add Quarter with =VALUE(RIGHT(B2,1)) • Add quarter dummies with =IF() as we’ve done previously • Regress lnGDP on Time and three quarter dummies • Two of the quarter dummies have p-values < 0.01 • Perform a Partial F test • p-value = 1.1E-7 • The quarter dummies improve the fit, so use all 3 MGTSC 312: Lab 9 - Loglinear Model

12. Does Quarter Add Anything? MGTSC 312: Lab 9 - Loglinear Model

13. Memo Formatting

14. Memo Formatting • The first part of the file tells you how to format the HW 8 file, but doesn’t follow its own instructions • Let’s make the file follow the rules • There are often several ways to accomplish the same task in Word; use your favourite • If the rulers are not visible go to View > Show/Hide > Ruler and drag the margin markers • Or go to Page Layout > Margins • Home > Select > Select All • Font Times New Roman 11 pt • Paragraph > Spacing: Single, Before (or After) 6 pts, or 3 pts before and 3 pts after. Ensure the “Don’t Add Space…” box remains unchecked • Grammar and Spell checking • Office button > Word Options > Proofing • Office button > Save As > Word ‘97 – 2003 document MGTSC 312: Lab9 – Loglinear Model