Economics 145 (Economic Research Methods)                                                                             Professor Yang
Spring 2001

Data Analysis Problem Set #1

The August 2000 National Economic Trends by the Federal Reserve Bank of St. Louis reported that the U.S. gross private savings (GPS) rate – the ratio of GPS to gross domestic product (GDP)- trended upward until the mid-1980s and has declined since then. In preparing for one of the research project of examining why has the U.S. private savings rate declined recently, students are required to the following data analysis.

1. Obtain data on GDP, disposable personal income, gross private saving, and gross government saving from the Statistical Appendix B of the Economic Report of the President. The range of data from 1959 through 1997. Obtain also "multilateral trade-weighted value of U.S. dollar (March 1973=100)" and the level of "real interest rate available to savers" in the same data sheet. To calculate the real interest rate, you need CPI for all items and one of the short-term interest rates. In the absence of "nominal interest rate available to savers", use "commercial paper, 6 month, and to deflate it to obtain the real interest rate.
2. Using Eviews, prepare a line graph of the level of Gross Private Saving and GDP over time.
3. Using Eviews again, prepare a graph of the ratio of GPS to GDP; Do the same for a graph of the ratio of GPS and disposable personal income. Which graph do you think is preferable? Why?
4. From macroeconomic theory course, you learned that national saving (S) is equal to the sum of private saving and public saving. Some of the key definitions of national saving, gross private saving, and gross public (or government) saving are as follows:

Y – C – G = S        SP = Y – T – C        SG = T – G S = SP + SG

Prepare a graph of national saving, gross private saving, and gross government saving.
Discuss the general trend of each saving component.

1. Compare the merits of two trend analysis one in terms of the level and another in terms of the ratio of each saving component to the GDP (as in Question 3).
2. Obtain the level of real interest rate available to savers and foreign exchange value of the U.S. dollar in real terms. Graph first the Gross Savings rate and real interest rate. Do the same this time with real exchange rate. Do you identify any patterns between the gross savings rate and real interest rate? How about the relationship between the gross savings rate and the real exchange rate?

Due date for the submission of your work is January 21 (Wed), 2001. Turn in Data Sheet and Problem Set Solutions to the instructor at the lecture on the due date.