Null Hypothesis of Haussman test, is: H
= random effect H
1
= fixed effect Suppose Chi Square
statistic
Chi Square
table
or in other word, while p- value 0.005. It means that we should reject null hypothesis H
and determine that fixed effect model is the suitable model to use Winarno,
2009. Hausman test is also available through Eviews-6 command program. Slope coefficient is constant but there is a variation between individual
intercept.
3.5.3 Econometric Model of the Research Study
The method that used in this research consists of the EMU European Monetary Union model principle in launching their single
currency Pitchford and Cox, 1997 excerpt from Rasheed and Ahmed, 2007 and the sigma convergence model Chowdhury, 2004 excerpt from
Rasheed and Ahmed, 2007. Pitchford and Cox, 1997 excerpt from Rasheed and Ahmed, 2007 edited the European Monetary Union EMU
principles for launching single currency for Europe. According to the editors the indicators like real income per capita, call money rate,
consumer price index, real exchange rate, exports, imports and balance of payments are vital. In this study, we have included the volume of trade
both for the country specific and as a world relative index. They used the following data series to apply the beta convergence criteria to evaluate the
possibility of the formation of a single currency in the Asia. The list of the selected variables is as follows;
viii. Consumer Price Index CPI
ix. Real Exchange Rate in US dollars RER
x. Growth rates of Foreign Exchange Reserves GFER
xi. Growth rates of Real Volume of Trade GRVT
xii. Growth rates of Real Relative Volume of Trade GRRVT
xiii. Growth rates of Per Capita Real GDP at factor cost GRYPC
In which; GRYPC = Growth rate of GDPpopulation
RER = Nominal Exchange Rate CPI
US
CPI GRVT = Growth rates of {Exports + ImportsCPI}
GRRVT = Growth rates of {Exports + ImportsCPI} {Exports
W
+ Imports
W
CPI
W
} Note; W = indicating world
This research follows Chowdhury 2004, in Rasheed and Ahmed 2007, the sigma convergence model used is given below;
σ
j
= α + β
j
t + ε
j
….……………………………………………….3.6 In which;
σ
j
= the standard deviations across the member countries
j
th
= indicator j = 1 to 6 α and β = the parameters of the model
t = time period ε = a stochastic error term
Note: a significant negative value of β indicates the possibility of convergence, while any other value of β implies non-convergence.
To process panel model above, Eviews 6.0 is used based on the reason that Eviews 6.0 is the newest version in this year which is much easier than
the previous version and also is friendly user interface.
3.5.4 Classic Assumption Test
