Research Project 2
Due: 4 pm, 25 Oct
Submission of your report
Your report must be single-spaced and in 12 Font size. You should give your answer to each of the
following questions following a similar format of the solutions to the tutorial problem sets. When you
are required to use R, you must show your R command and R outputs (screenshots or figures gener-
ated from R). You will lose 2 points whenever you fail to provide R commands and outputs. For each
question, when you are asked to discuss or interpret, your answer has to be brief and compact. You
will lose 2 points if your answer is needlessly wordy.
The Turnitin system may slow down as the deadline approaches due to high traffic from multiple
submissions. To avoid potential issues, submit your report well in advance. This time, late submission
penalties will be strictly based on the submission time recorded in the system. Do not email your
assignment or submit a hard copy if you miss the deadline.
This project has two research questions. You are required to investigate both of them.
Problem 1: Money, Growth, and Inflation (40 marks)
BackgroundTo examine the quantity theory of money, Brumm (2005) [“Money Growth, Output Growth, and
Inflation: AReexaminationoftheModernQuantityTheory’sLinchpinPrediction,”SouthernEconomic
Journal, 71(3), 661–667] specifies the inflation equation
inflat = β +β money+β output+u
1 2 3
where inflat is the growth rate of the general price level, money is the growth rate of the money
supply, and output is the growth rate of national output. Economic theory suggests that β = 1 and 2β = −1. The dataset brumm.dta consists of 1995 data on 76 countries.
