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Econ 240 C

Econ 240 C. Lecture 12. The Big Picture. Exploring alternative perspectives Exploratory Data Analysis Looking at components Trend analysis Forecasting long term Distributed lags Forecasting short term. Schedule 6. Schedule 9. The story based on a bivariate distributed lag model. 07-08.

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Econ 240 C

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  1. Econ 240 C Lecture 12

  2. The Big Picture • Exploring alternative perspectives • Exploratory Data Analysis • Looking at components • Trend analysis • Forecasting long term • Distributed lags • Forecasting short term

  3. Schedule 6

  4. Schedule 9

  5. The story based on a bivariate distributed lag model 07-08

  6. Another Story Based On a Univariate ARIMA Model

  7. Part I. CA Budget Crisis

  8. CA Budget Crisis • What is Happening to UC? • UC Budget from the state General Fund

  9. UC Budget • Econ 240A Lab Four • New data for Fiscal Year 2007-08 • Governor’s Budget Summary 2007-08 • released January 2007 • http://www.dof.ca.gov/

  10. CA Budget Crisis • What is happening to the CA economy? • CA personal income

  11. Log Scale

  12. CA Budget Crisis • How is UC faring relative to the CA economy?

  13. CA Budget Crisis • What is happening to CA state Government? • General Fund Expenditures?

  14. CA Budget Crisis • How is CA state government General Fund expenditure faring relative to the CA economy?

  15. Long Run Pattern Analysis • Make use of definitions: • UCBudget = (UCBudget/CA Gen Fnd Exp)*(CA Gen Fnd Exp/CA Pers Inc)* CA Pers Inc • UC Budget = UC Budget Share*Relative Size of CA Government*CA Pers Inc

  16. What has happened to UC’s Share of CA General Fund Expenditures? • UC Budget Share = (UC Budget/CA Gen Fnd Exp)

  17. 07-08

  18. UC Budget Crisis • UC’s Budget Share goes down about one tenth of one per cent per year • will the legislature continue to lower UC’s share? • Probably, since competing constituencies such as prisons, health and K-12 will continue to lobby the legislature.

  19. What has happened to the size of California Government Expenditure Relative to Personal Income? • Relative Size of CA Government = (CA Gen Fnd Exp/CA Pers Inc)

  20. 07-08

  21. California Political History • Proposition 13 • approximately 2/3 of CA voters passed Prop. 13 on June 6, 1978 reducing property tax and shifting fiscal responsibility from the local to state level • Gann Inititiative (Prop 4) • In November 1979, the Gann initiative was passed by the voters, limits real per capita government expenditures

  22. CA Budget Crisis • Estimate of the relative size of the CA government: 7.00 % • Estimate of UC’s Budget Share: 3.00% • UC Bud = 0.03*0.07*CAPY • UC Bud = 0.0021* 1502.5 $B • UC Bud = 3.155 $B

  23. Forecasts of UC Budget, 07-08

  24. Econometric Estimates of UCBUD • Linear trend • Exponential trend • Linear dependence on CAPY • Constant elasticity of CAPY

  25. Econometric Estimates • Linear Trend Estimate • UCBUDB(t) = a + b*t +e(t) • A lucky coincidence • Usually either too low or too high!

  26. A Lucky Coincidence: 2 out of 10

  27. Econometric Estimates • Logarithmic (exponential trend) • lnUCBUDB = a + b*t +e(t) • simple exponential trend will over-estimate UC Budget by far

  28. Econometric Estimate • Dependence of UC Budget on CA Personal Income • UCBUDB(t) = a + b*CAPY(t) + e(t) • looks like a linear dependence on income will overestimate the UC Budget for 2007-08

  29. Econometric Estimates • How about a log-log relationship • lnUCBUDB(t) = a + b*lnCAPY(t) + e(t) • Estimated elasticity 0.833 • autocorrelated residual • fitted lnUCBUDB(2007-08) = 1.32945 • $3.78 B • actual (Governor’s Proposal) = 1.18481 • $3.27B

  30. Is Higher Education an Inferior Good?

  31. Is Government an Inferior Good? • Elasticity = 1.073

  32. Forecasting Conclusions • Trend analysis and bi-variate regressions of UC General Fund Expenditures on California Personal Income focus on the long run • The UC budget depends on the business cycle, a more short run focus • Try Box-Jenkins Methods

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