The following table gives data on imports, GNP, and the consumer price index (CPI)
for the United States over the period 1970-1983.

Download:  1026.dat ,  1026.xls

(a) Estimate the parameters of "ln Importst = £]1 + £]2ln GNPt + Ut" (Eviews)

(b) Do you suspect that there is multicollinearity in the data? (Suggested Answer)

(c) Examine the nature of collinearity using the condition index. (Suggested Answer)

(d) Regress 1) ln Importst = A1 + A2ln GNPt
                   2) ln Importst = B1 + B2ln CPIt
                   3) ln GNPt = C1 + C2ln CPIt (Eviews)(Rats)

(e) In these case should we worry about about the collinearity problem? If so, what can
     we do?(Suggested Answer)