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MACROECONOMICS

TERM PROJECT

NIIT UIVERSITY
MBA F&B Section - 1

Objective
To take various macroeconomic indicators and study the correlation and dependence of one indicator on
another and to derive regression models using SPSS tool.
Parameters Taken for Study: GDP Growth, Inflation Rate, Interest Rate, Fiscal Deficit and Export Rate.

Correlation:

Correlation is a statistical technique which tells us if two variables are related. The significance of the
correlation thus found is checked by hypothesis test.
Null Hypothesis: H0: The correlation between two variables is not significant
Alternate Hypothesis: Ha: The correlation between two variables is significant
Correlations
Per capita
GDP growth GDP growth
%
%
GDP growth %

Pearson
Correlation

Sig. (2-tailed)
N
Per capita GDP
growth %

Pearson
Correlation
Sig. (2-tailed)
N

Inflation rate

Pearson
Correlation
Sig. (2-tailed)
N

Interest rate

Pearson
Correlation
Sig. (2-tailed)
N

Fiscal deficit

Pearson
Correlation
Sig. (2-tailed)
N

Export %

33
.990

**

Interest
rate

Fiscal deficit

-.096

-.383

-.433*

.241

.000

.594

.028

.012

.176

33

33

33

33

33

-.092

**

**

.263

.000

-.482

-.492

.611

.005

.004

.140

33

33

33

33

33

33

-.096

-.092

.295

.113

-.276

.594

.611

.096

.532

.120

33

33

33

33

33

**

.295

**

-.387*

.028

.005

.096

.004

.026

33

33

33

33

33

33

**

.113

**

-.336

.012

.004

.532

.004

33

33

33

33

33

33

-.336

-.383

-.433

-.482

-.492

33

.491

.491

.056

Pearson
Correlation

.241

.263

-.276

-.387

Sig. (2-tailed)

.176

.140

.120

.026

.056

33

33

33

33

33

Export
%

.990

**

Inflation
rate

**. Correlation is significant at the 0.01 level (2-tailed).


*. Correlation is significant at the 0.05 level (2-tailed).

33

Between a pair of indicators, If the significance value is less than 0.05 then the null hypothesis is rejected (i.e.)
a significant correlation exists between them. Negative correlation sign indicates that the two parameters are
inversely related.
From the above output we can see a fair correlation between
1.
2.
3.
4.

GDP with Interest rate and Fiscal deficit


Interest rate with GDP, Fiscal deficit and Export %
Fiscal deficit with GDP and Interest rate
Export with Interest rate and Fiscal deficit

Regression Model Deriving Linear Relationship between 2 economic indicators


Regression:
Regression is a statistical technique which given the relationship equation between two variables. The
significance of the regression model thus found is checked by hypothesis test.
We consider Y as the dependent variable and X as the independent variable for the following models.
GDP vs. Fiscal Deficit
Model Summaryb
Model
Adjusted R Std. Error of DurbinR
R Square Square
the Estimate Watson
a
.433
.187
.161
1.98284
1.807
a. Predictors: (Constant), Fiscal deficit
b. Dependent Variable: GDP growth %
To check the significance of the model we do the ANOVA,
Null Hypothesis: H0: The model is not significant
Alternate Hypothesis: Ha: The model is significant
ANOVAb
Model

Sum of
Squares
df
1
Regression 28.116
1
Residual
121.881
31
Total
149.997
32
a. Predictors: (Constant), Fiscal deficit
b. Dependent Variable: GDP growth %

Mean
Square
28.116
3.932

F
7.151

Sig.
.012a

As the P-value (1.2%) is less than the level of significance 5%, the null hypothesis is rejected, therefore the
model is significant.

Coefficientsa
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant) 10.347
1.596
Fiscal
-.740
.277
deficit
a. Dependent Variable: GDP growth %

Standardize
d
Coefficients
Beta
t
6.484
-.433
-2.674

Sig.
.000
.012

Therefore the linear regression equation is Y=10.347-0.740X


Interest Rate vs. Fiscal Deficit
Model Summaryb
Model
Adjusted R Std. Error of DurbinR
R Square Square
the Estimate Watson
a
.491
.241
.216
2.41412
.461
a. Predictors: (Constant), Fiscal deficit
b. Dependent Variable: Interest rate
To check the significance of the model we do the ANOVA,
Null Hypothesis: H0: The model is not significant
Alternate Hypothesis: Ha: The model is significant
ANOVAb
Model

Sum of
Squares
df
1
Regression 57.240
1
Residual
180.667
31
Total
237.906
32
a. Predictors: (Constant), Fiscal deficit
b. Dependent Variable: Interest rate

Mean
Square
57.240
5.828

F
9.822

Sig.
.004a

As the P-value (0.4%) is less than the level of significance 5%, the null hypothesis is rejected, therefore the
model is significant.
Coefficientsa
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant) 8.075
1.943
Fiscal
1.056
.337
deficit
a. Dependent Variable: Interest rate

Standardize
d
Coefficients
Beta
t
4.156
.491
3.134

Therefore the linear regression equation is Y=8.075+1.056X

Sig.
.000
.004

Interest rate vs. Export %


Model Summaryb
Model
Adjusted R
R
R Square Square
.387a
.150
.122
a. Predictors: (Constant), Export %
b. Dependent Variable: Interest rate

Std. Error of Durbinthe Estimate Watson


2.55474
.351

To check the significance of the model we do the ANOVA,


Null Hypothesis: H0: The model is not significant
Alternate Hypothesis: Ha: The model is significant
ANOVAb
Model

Sum of
Squares
df
1
Regression 35.578
1
Residual
202.328
31
Total
237.906
32
a. Predictors: (Constant), Export %
b. Dependent Variable: Interest rate

Mean
Square
35.578
6.527

F
5.451

Sig.
.026a

As the P-value (2.6%) is less than the level of significance 5%, the null hypothesis is rejected, therefore the
model is significant.
Coefficientsa
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant 15.277
.698
)
Export % -.117
.050
a. Dependent Variable: Interest rate

Standardize
d
Coefficients
Beta
t
21.877

Sig.
.000

-.387

.026

-2.335

Therefore the linear regression equation is Y=15.277-0.117X


Fiscal deficit vs. Interest rate
Model Summaryb
Model
Adjusted R Std. Error of DurbinR
R Square Square
the Estimate Watson
a
.491
.241
.216
1.12095
.981
a. Predictors: (Constant), Interest rate
b. Dependent Variable: Fiscal deficit
To check the significance of the model we do the ANOVA,
4

Null Hypothesis: H0: The model is not significant


Alternate Hypothesis: Ha: The model is significant
ANOVAb
Model

Sum of
Squares
df
1
Regression 12.341
1
Residual
38.952
31
Total
51.293
32
a. Predictors: (Constant), Interest rate
b. Dependent Variable: Fiscal deficit

Mean
Square
12.341
1.257

F
9.822

Sig.
.004a

As the P-value (0.4%) is less than the level of significance 5%, the null hypothesis is rejected, therefore the
model is significant.
Coefficientsa
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant) 2.434
1.037
Interest
.228
.073
rate
a. Dependent Variable: Fiscal deficit

Standardize
d
Coefficients
Beta
t
2.347
.491
3.134

Sig.
.026
.004

Therefore the linear regression equation is Y=2.434-0.228X


Fiscal deficit vs. GDP Growth:
Model Summaryb
Model
Adjusted R
R
R Square Square
.433a
.187
.161
a. Predictors: (Constant), GDP growth
b. Dependent Variable: Fiscal deficit

Std. Error of Durbinthe Estimate Watson


1.15951
1.015
%

To check the significance of the model we do the ANOVA,


Null Hypothesis: H0: The model is not significant
Alternate Hypothesis: Ha: The model is significant
ANOVAb
Model

Sum of
Mean
Squares
df
Square
1
Regression 9.615
1
9.615
Residual
41.678
31
1.344
Total
51.293
32
a. Predictors: (Constant), GDP growth %
b. Dependent Variable: Fiscal deficit

F
7.151

Sig.
.012a

As the P-value (1.2%) is less than the level of significance 5%, the null hypothesis is rejected, therefore the
model is significant.
Coefficientsa
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant)
7.192
.619
GDP growth -.253
.095
%
a. Dependent Variable: Fiscal deficit

Standardize
d
Coefficients
Beta
t
11.619
-.433
-2.674

Sig.
.000
.012

Therefore the linear regression equation is Y=7.192-0.253X


Export vs. Interest rate
Model Summaryb
Model
Adjusted R Std. Error of DurbinR
R Square Square
the Estimate Watson
a
.387
.150
.122
8.42623
1.851
a. Predictors: (Constant), Interest rate
b. Dependent Variable: Export %
To check the significance of the model we do the ANOVA,
Null Hypothesis: H0: The model is not significant
Alternate Hypothesis: Ha: The model is significant
ANOVAb
Model

Sum of
Squares
df
1
Regression 387.043
1
Residual
2201.043
31
Total
2588.086
32
a. Predictors: (Constant), Interest rate
b. Dependent Variable: Export %

Mean
Square
387.043
71.001

F
5.451

Sig.
.026a

As the P-value (2.6%) is less than the level of significance 5%, the null hypothesis is rejected, therefore the
model is significant.
Coefficientsa
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant) 28.603
7.798
Interest
-1.275
.546
rate
a. Dependent Variable: Export %

Standardize
d
Coefficients
Beta
t
3.668
-.387
-2.335

Sig.
.001
.026

Therefore the linear regression equation is Y=28.603-1.275X

Conclusion

The correlation between various economic indicators (GDP growth, Interest rate, Inflation rate, Export rate and
Fiscal Deficit) were studied and regression models were derived for the same using SPSS.

References:
Data Source: http://data.worldbank.org/country/india

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