University of Illinois Department of Economics
Spring 2006 Econ 471 Roger Koenker
Problem Set 4
Dynamic Models and Causality
Due: April 11
This problem set combines two topics, the first part of the problem set is based on
the celebrated paper by Thurman and Fisher (1988) which resolved the longstanding
scientific dispute over “which came first: the chicken or the egg?” The second part
deals with a dynamic version of the gasoline demand model considered in problem
set
I. The data for the first part of the problem set was kindly provided by Thurman,
consists of annual time series 1930-1983 for U.S. egg production in millions of dozens
and the December 1 USDA estimate of the US chicken population, (excluding broil-
ers). Unfortunately, as provided, the data seems to be slightly different than that
analyzed by Thurman and Fisher. As a result your results based on the problem set
data can be expected to vary somewhat from those reported in the Thurman and
Fisher paper. The data is provided on the class web page as eggs.txt.
1. Using granger() try to reproduce the results of Thurman and Fisher’s Table
1. Explore, as they did the effect of choosing different lag lengths to see how
this influences the results.
2. Test each series for I(1) behavior using the augmented Dickey-Fuller test. You
may use the adf() function for this purpose, but again look closely to see how
it works. Note that your results here may depend on the length of the lag you
specify in the ADF test. How do your results here influence your interpretation
of the findings in question 1?
3. Given the the results of the ADF tests try repeating the Granger test on the
first differences of the chicken and egg series to see whether that changes the
results.
