Describe the model of consumption expenditures and the theoretical foundation for the model.

The date is attached in a document down below. No references needed.

Estimate the regression models given by equations (1), (2), and (3) below and
perform appropriate hypothesis tests and diagnostic tests
The data to be used for the estimation includes the period January 2002 – August 2021.
pcei = β1 + β2 pdii + ui (1)
pcei = β1 + β2 pdii + β3 ushpii + β4 consenti + ui (2)
pcei = β1 + β2 pdii + β3 ushpii + β4 consenti + β5 pdireci + ui (3)
where:
pce = US real personal consumption expenditures (billions of chained 2012 dollars)
pdi = US real disposable personal Income (billions of chained 2012 dollars)
ushpi = S&P/Case-Shiller US Home Price Index, seasonally adjusted (index Jan 2000=100)
consent = University of Michigan Consumer Sentiment Index (index 1966:Q1=100)
pdirec = pdi*rec
(rec = 1 if the U.S. economy was in a recession
0 otherwise)

*Here is where the project starts*

Write a project report. Requirements:
a. Describe the model of consumption expenditures and the theoretical foundation for the model
b. Specify the econometric model — what is the dependent variable, what are the independent
variables in the regression model, alternative specifications adopted (e.g. models 1, 2, 3 above).
c. Describe the data sources and the variables used in the research
d. Report the results of the estimated model (the estimated equations or a table that contains
signs and magnitudes of the estimated coefficients along with their std. errors, F-statistics, R2
and interpret these results
e. Perform the diagnostic tests for Model 3 (for multicollinearity, specification errors, and
autocorrelation).
f. Analyze the empirical findings based on the econometric estimation and the hypothesis tests.
Based on the results of the diagnostic tests, provide suggestions (if necessary) for improving the
model of U.S. consumption expenditures.

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