You are given data on three variables: Australian government bonds yields (yields), change in the level of US employment (US_L), and the Standard and Poor Price Index of the Australian Securities Exchange 200 (ASX200) 
These data are available for the period April 2002-March 2013 and are stored in the file "File_assignment_2". The file also contains a full description of the variables and data sources. 
The purpose of the assignment is to document the following two relationships: 
- ASX200 (dependent variable(Y)) as a function of yields (independent variable(X)) 
- ASX200 (dependent variable???) as a function of US_L (independent variable???) 
More specifically, this is the structure you will have to follow (note approx. word count for each section does not include tables and charts) 
(i) Section 1: Introduction. Briefly outline your expectations about the sign of the two relationships. Motivate your expectations with some intuitive argument. Then briefly describe the contents of the assignment (approx. 300 words) 
(ii) Section 2: Preliminary Analysis: Use scatter plots and correlation coefficients to formulate some preliminary hypotheses on the function form of the two relationships. For each of the two relationships, identify at least two potentially suitable functional forms (Approx 400 words with at least four charts) 
(iii) Section 3: Estimation results: Estimate the coefficients of the function forms identified in point (i). Discuss the statistical significance of the estimated coefficients and the goodness of fit of the regression lines. Make sure that you provide a short explanation of the following statistical concepts: p-value, and R2 (approx. 1000 words, with tables and a scatter plot with the fit line??????? for each of the estimated regressions) 
(iv) Section 4: Discussion: For each of the two relationships of interest, select a preferred functional form. Make sure you motivate your selection. Using the selected functional form, estimate the effect on ASX200 of (A) an increase in government bond yields from 2% to 3%, and (B) an increase in US employment by 5 (thousand units) (Approx 400 words) 
(v) Section 5: Extensions: Estimate a multivariate linear regression where ASX200 is regressed on both yields and US_L. Compare estimates from this regression with the results In Section 3 (Approx 500 words, with a table for the results of the multivariate regression) 
(vi) Section 6: Conclusions: summarize your findings in view of your expectations stated in Section 1 (Approx 200 words) List of references: if you cite any reference in your assignment, please provide full reference at the end. 

INSTRUCTIONS 
1. Follow instructions in the Course profile for assignment submission. 
2. Penalties apply for late submission. Excuses of the type "The system did not work/allow me to submit" will not be accepted to justify late submission. If you encounter a technical problem at the time of submission, immediately notify the course convenor by e-mail. 
3. Your assignment must be submitted as a single word document. All tables, charts, and text must be included in this single word document. 
4. Presentation is one of the marking criteria for this assignment: check that your charts are properly formatted and include an overall title as well as axes titles, make sure that you proofread your assignment for grammar and spelling mistakes. Please, closely follow the structure I have provided above. 
5. The essay is not meant to test your specific knowledge of economics and financial dynamics. However, the essay is meant to test your knowledge of quantitative methods. This means that in addition to getting scatter plots and estimates coefficients right, you also have to provide clear explanations of what you are doing and correct interpretations of the estimates you obtain and diagrams you draw. 
6. This is an individual assignment and not a group assignment. You can exchange opinions with your course mates, but you will have to work on your assignment individually. Copying/using the results/text of other classmates is a serious academic offence and as such it will be addressed. Files and questions are set-up in such a way to allow the course convenor to detect immediately if a student has merely copied results from other students. 
7. Make sure that you work on your own dataset. Each student has received an individual message with individual text and data file. Use only the data file you have received, not the data file of other students because all data files are in some particular respect different. 
8. The total length of the assignment should be between 2500-3000 words. I have provided approximately word count for each section.