Question

Part I. A study was conducted to determine the relationship between the number of new single family homes using annual U.S. data for the years 1959-2009: NEWHOME = 863.6 - 276.9 RECESS: +.002 POP - 8.7 INTRATE (62.0) (.0008) (9.5) NEWHOME=# of new single family homes (in thousands of homes) RECESS= 1 if economy is in recession; 0 else POP = civilian population (in thousands) INTRATE= inflation-adjusted prime rate (in %) AVERAGE NEWHOME= 1,079.5 (in thousands); AVERAGE POP = 174,060.8 (in thousands); AVERAGE INTRATE = 7.8 (in %); AVERAGE RECESS = .3. ANALYSIS OF VARIANCE - FROM MEAN (Taken from Stata Output) Model Residual Total SS 1267438 1904583 3172021 ANALYSIS OF VARIANCE TABLE (Taken from R Output) dataframe$NEWHOME Residuals Sum Sq 3172021 1904583

A. Provide a precise quantitative interpretation of the estimated coefficient on INTRATE

Answer 1

The estimated coefficient of INTRATE is capturing the impact of prime rate adjusted for inflation on number of new single family homes. It captures how the number of single family homes that are demanded over the period of time are affected if the prime rate adjusted for increasing inflation goes up.

-8.7 value is showing that of the prime rate adjusted for inflation goes up by 1% point the number of new single family homes goes down by 8.7x1000 homes that is 8700 homes.

The negative sign is indicative of negative relationship between new single family homes and prime rate adjusted for inflation.