Introduction to Stataquest
Econ 253

The notion that there might be a trade-off between unemployment and inflation is well known. The perception is that if the government tries to reduce inflation by contractionary monetary and fiscal policy, then unemployment will surely rise. Thus one would expect a negative correlation between unemployment and inflation. This relationship is known as the Phillips curve. The file phillips.txt contains annual data for the U.S. on unemployment and inflation  rates and wage growth. The source of the date is the 1996 Economic Report of the President. The file has 5 variables:
   year   =  1959-95
   unemp  =  Civilian unemployment rate (%), Table B-38
   cpi    =  Consumer price index (1982-84 = 100), Table B-56
   infl   =  Percent change in CPI (inflation rate) calculated  as 100*[CPI(t) - CPI(t-1)]/CPI(t-1)
   wggr   =  index of average weekly earnings in current dollars, 1959=100 , Table B-43
 

  1. Download the data and load them into stataquest.
  2. Compute summary statistics for inflation and unemployment.
  3. Scatter plot inflation and unemployment.
  4. Compute the correlation coefficient between unemployment and inflation for the whole sample.
  5. Compute the correlation for the periods 1959-1970, 1971-1980, 1981-1995. Has the relationship changed over the decades?
  6. Calculate growth rate in nominal wage and redo the analysis using the wage growth instead of the inflation rate.


Instructions:

  1. Stata is a very powerful and widely used statistical software. The Windows 95 version of Stataquest is available on a diskette at the back of the Stata Quest 4 manual. This handout has a brief overview. Stataquest is relatively easy to use, because it is menu-driven, and almost everything is done by pointing and clicking. Below are the basic instructions to get you started.
  2. If you are using the computers in Jesup, double click on the StataQuest icon or click Start, Programs, Stataquest. To install on your own computer put in the diskette, double click on a:setup.exe and follow instructions.
  3. Stataquest has three four default windows: "Commands," "Variables," 'Results," and "Review." Commands can either be typed into the Commands window or called using the menu on top of the screen. The list of variables in the data set appears in the "Variables" window, and "Review" contains all the commands entered. The results of the statistical analysis appear in the "Results" window.
  4. Stataquest allows you to maintain a log file, which is a record of your work. Always start by opening a log file. Click the log button, enter a name in the dialog box (*.log), and click open.
  5. Save phillips.txt on your hard drive or a diskette and use commands FILE, IMPORT ASCII to load the data into stataquest.
  6. Notice that the Review box contains a record of the commands you have executed, and the Variables box lists the variables in your data set.
  7. Use SUMMARIES, MEANS AND SDs.
  8. Use GRAPH, SCATTERPLOTS.
  9. Use STATISTICS, CORRELATIONS, PEARSON.
  10. There are several ways to perform your analysis on subsamples. One way is to delete observations that are outside your subsample and calculate correlations. Another way is to use the command window and type the correlation command with a qualifying "if" statement. For example to calculate the correlation for subsample you would type: "pwcorr infl unemp if (year<1981 & year>1970)"
  11. STATA indexes observations with variable _n. The lagged  value of wgindex is in wgindex[_n-1]. Calculate the wage growth using DATA, GENERATE/REPLACE, FORMULA, enter the name of the new variable(e.g. wgrowth) and the formula "(wgindex-wgindex[_n-1])/wgindex[_n-1]".
  12. You can now save your data in a special format convenient for Stataquest. Choose File, Save As. In the Dialog box enter a name for the data set. The name must be of the form *.dta.. To use this saved data set at a later time, click File, Open, and choose the appropriate data set.
  13. You can now check that a record of all your work has been kept, by clicking the log button, choosing Bring log Window to the Top, and clicking OK. Click the log button, and choose Close log file. All your work will have been saved in the log file you had earlier specified.