Essay: Exploratory Data Analysis

Sample Essay

Additionally, Mills in his study guessed that as business cycle is more volatile, GDP rises. For analysis of positive relationship, he estimated 4 different methods for cyclical component of output: structural model (which has stochastic trend), linear filter (a two-sided moving average), Hodrick-Prescott filter (H-P – constructed by a computational algorithm) and band-pass filter.

Then he suggested interesting approach – visualisation. Mills stated that “exploratory data analysis” can show elaborate structure in data which might be not possible to get in any other way. For this he used scatter plots with tight non-parametric curves superimposed. The curves are called “loess” fits. Figure 2 shows growth – volatility ratios for 1946 – 1994 relative to 1870 – 1908. Positive relationship can be seen. Moreover, Mills noticed that there were two ratio groups: “high” and “low”. Worth mentioning, that for the countries with high growth and volatility ratios, relationship is not very strong. Meanwhile, for the low ratios countries correlation is clearly positive. Therefore, it can be concluded that association between output growth and volatility is positive.

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