Assignment Task
Question (): Interpret and Replicate an Academic Paper
Read teaching materials and the paper by Chow and Wang (2010) “The Empirics of Inflationin China” to answer the following questions. Chow and Wang (2010) paper could be
downloaded from the Blackboard.
1) On the first page, paragraph 3, the authors report “The Augmented Dickey–Fuller testsstrongly suggest the presence of a unit root in log() and log).” Verify this statementusing the data provided in the paper. Report in detail the steps of your exercise withexplanation. ()
2) On the first page, the last paragraph, the authors report “Let be theestimated trend deviation of the log price level or the error correction term. We then regres andwhere ) is defined as log() −
log(−1), …”. What is “estimated trend” referred to in the first sentence and for whatpurpose it should be estimated? Replicate the last two regression results reported at the endof this page. Illustrate your understanding of this model. Specifically, what is the purposefor this regression? How to interpret the estimated coefficients for this model? Illustrateyour understanding that the coefficient on is negative.
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