Questions and Answers of Introductory Econometrics Modern

Use the data in MACRO.XLS and statistical software to run Granger tests to determine if reverse causality is a problem in the following regression:RGDPt = ˆ + ˆ RINV + e 0 1 t t where RGDP is real
Use the data in QLEISCOIN.XLS and statistical software to do Granger tests to determine if changes in the leading economic indicators (LEIS) precede changes in the coincident indicators (COIN).(A)
Use the data in MACRO.XLS and statistical software to determine if changes in real disposable personal income (RDPI) precede changes in real consumer spending (RCONS) or vice versa using lag lengths
Use the data in QLEISCOIN.XLS and statistical software to do the following problems.COIN—Percentage change in the composite index of coincident economic indicators.LEIS—Percentage change in the
Consider the following regression:M = 2.00–0.10 R + 0.70 Y + 0.60 M + e(0.10) (0.35) (0.10) standard errors R = .9 DW = 1.80 n = 26 t t t t 1 t 2where M is the demand for M1.R is the interest rate
Mark each of the following statements TRUE or FALSE.(A)ut = ut 1 + t is a second-order Markov scheme.(B) The standard error of the regression (SER) is biased upward in the presence of serial
Use the data in ANMACRO.XLS and statistical software to run a regression where the demand for money (m2) is explained by a constant term, income (ngdp), interest rates (aaa), and prices (cpi).(A)
Use the data in CONSUMP.XLS and statistical software to run the following regression:Where RCONPC = real consumer spending in the USA per capita REALYDPC = real disposable income per capita REALR =
Use the data in ANMACRO.XLS and statistical software to run the following regression:where m2 is the money supply cpi is the consumer price index ngdp is nominal gdp (A) Plot the error terms over
Use the data in CONSUMP.XLS and statistical software to run the following regression:(A) Plot the error terms over time. Do you suspect serial correlation? Explain.(B) Plot the error terms against
Complete the following table:Sample size k d-Stat Autocorrelation present?15 2 1.60 25 3 1.80 45 4 2.48 100 6 2.72 150 10 2.11
Complete the following table:Sample size k d-Stat Autocorrelation present?20 2 0.83 32 3 1.24 45 4 1.98 100 5 3.72 150 7 1.71
Mark the following statements TRUE or FALSE:(A)E[u ] E[u ] i 2j 2for all i ≠ j is the definition of heteroskedasticity.(B) The “culprit variable” is the dependent variable in a heteroskedastic
Linear probability models are prone to heteroskedasticity. Use the data in BINGE.XLS and statistical software to run a regression where BINGE is explained by a constant term, cig, class, intra, male,
Use the data in ALCO5.XLS and statistical software to run a regression where drinks is explained by a constant term, gpa, male, ofage, cig, pot, intra, and white.Variable Description drinks Number of
Mark each of the following statements TRUE or FALSE:(A) ˆ1 is BLUE in the presence of multicollinearity.(B) In the presence of multicollinearity, ˆ1 will be inefficient.(C) With perfect
Use the following equation to argue that the VIF is undefined when there is perfect multicollinearity between two explanatory variables:R VIF = 1 1 2
Use the following equation to argue that the SE( ˆ1) is undefined under perfect multicollinearity between X1 and X2:where r12 2 is the correlation coefficient between X1 and X2 squared. SE(B) =
Discuss the pros and cons of the following remedies for multicollinearity:(A) Drop a variable(B) Try an alternate functional form such as the reciprocal form(C) Do nothing
Given: Stalk Heighti = 2.0 + 3.0 Rainfalli + 4.0 Fertilizeri + ei where Stalk Height is the average height of corn stalks in a field Rainfall is average rainfall per week on the field Fertilizer is
Mark the following statements TRUE or FALSE:(A) ˆ1 is BLUE in the presence of serial correlation.(B) In order to show that ˆ1 is best, it must be assumed that the ei’s are not correlated with
Label each statement below TRUE or FALSE.(A) R-squared is not a good measure of fit for a linear probability model.(B) A logistic model can yield a predicted value for the dependent variable that is
Use the data in EXTRAMARITAL.XLS and statistical software to estimate a logistic model where EXTRA is explained by a constant term, AGE, HPPYM, RELIG, and YRSMAR. What is the probability that a
Use the data in EXTRAMARITAL.XLS and statistical software to estimate a linear probability model where EXTRA is explained by a constant term, AGE, HPPYM, RELIG, and YRSMAR.EXTRA = 1 if person
Use the data in WAGES.XLS and statistical software to run a regression where MARRIED is explained by a constant term, WAGES, ED, and PRO.(A) Interpret all four structural parameters.(B) What is the
Use the data in WAGES.XLS and statistical software to run a regression where the natural logarithm of wages is explained by a constant term, education, experience, and dummy variables for marital
Use the data in WAGES.XLS and statistical software to run a regression where wages are explained by a constant term, education, a dummy variable for gender, and an interactive term.(A) Interpret all
Use the data in WAGES.XLS and statistical software run to run a regression where wages are explained by a constant term, education, experience, and a dummy variable for gender.Name Variable WAGES
(A) Interpret every structural parameter in the following regression:PERSAV = 41.8081 + 0.0321 INC 19.7655 DUM 0.0021 DUM INC + e t t t t t where PERSAV is personal savings in the USA;INC is
(A) Interpret every structural parameter in the following regression:GPAi = 0.37 + 0.81 HSGPAi + 0.00001 SATi–0.38 GREEKi + ei where GPA is grade point average in college;HSGPS is high school
Use the data in SDATA.XLS and statistical software run the following regression:where INTER is MALE × ST (A) Interpret all four structural parameters.(B) Who benefits more from an extra unit of ST,
(A) Interpret every structural parameter in the following regression:where PROFSAL is the professor’s salary;EXP is the professor’s experience in years;DUM = 1 if the professor is male; 0
Use the data in SDATA.XLS and statistical software to run the following regression:where GPA = grade point average ST = study time per day SAT = SAT score MALE = 1 if the student is male; 0 otherwise
(A) Interpret every structural parameter in the following regression:PROFSALi = 17.969 + 1.3707 EXPi + 3.3336 DUMi + ei where PROFSAL is the professor’s salary;EXP is the professor’s experience
In the spaces below draw the following regression results:(A) LNWAGES = 2.1 + 1.3 EXP(B) WAGES = 2.1 + 1.3 EXP - 2.3 EXPSQ(C) WAGES = 2.5 - 0.1 (1/EXP) WAGES EXP
Interpret every structural parameter in each of the following regressions considering: (A) LNWAGES; = 2.1 + 1.3 EXP; (B) WAGES, 2.1 + 1.3 EXP - 2.3 EXPSQ;+ e (C) WAGES, = 2.5 -0.1 (1/EXP) i + C =
In the regression below, what would be the new values of ˆ0, ˆ1, their t-ratios, SER, r 2, and the mean of HEIGHT if AGE was measured in months instead of years and height was measured in inches
In the regression below, what would be the new values of ˆ0, ˆ1, their t-ratios, SER, r 2, and the mean of WEIGHT if WEIGHT was measured in ounces instead of pounds? WEIGHT 51.12 + 1.85 HEIGHT; + e
Use the data in OKUNUK.XLS and statistical software to run the following regression:where GDPGAP = real GDP growth minus potential GDP growth in the UK CHGUN = change in the unemployment rate in the
Given the scattergram below, is regression through the origin a good idea in this case? Explain why or why not. 0 0 X Y
Use the data in MBAPAY.XLS and statistical software to run the following regression:where RCONPC = real consumer spending in the USA per capita REALYDPC = real disposable income per capita REALR =
Use the data in CONSUMP.XLS and statistical software to run the following regression:where RCONPC = real consumer spending in the USA per capita REALYDPC = real disposable income per capita REALR =
Use the data in MBAPAY.XLS and statistical software to run the following regression:where MBAPAYi = average starting salary of MBA students from school i AVGMATi = average GMAT score at school i
Use the data in CONSUMP.XLS and statistical software to run the following regression:where RCONPC = real consumer spending in the USA per capita REALYDPC = real disposable income per capita REALR =
Use the data in SDATA.XLS and statistical software to run the following regression:where GPA = grade point average.ST = study time per day SAT = SAT score (A) Interpret the value you obtained for
Use the data in SDATA.XLS and statistical software to run the following regression:where GPA = grade point average and ST = study time per day(A) Interpret the value you obtained for ˆ0.(B)
Mark the following statements TRUE or FALSE(A) A 95% confidence interval will be smaller than a 90%confidence interval.(B) A positive sign test is one-tailed.(C) A negative sign test is
Given the following regression results:(A) Do a test of significance on the coefficient on OVER65. Show the five-step procedure.(B) Would the results of your test turn out differently if the critical
Given the following regression results:(A) Do a test of significance on the coefficient on MIL. Show the five-step procedure.(B) Would the results of your test turn out differently if the critical
Label the following statements TRUE or FALSE:(A) A large SER and very low r 2 can be the result of the Y-variable being very random.(B) If r 2 = 0, then 1must = 0.(C) If r 2 = 1, then 1must = 1.(D)
Given the following:GDPi = ˆ + ˆ COR + e 0 1 i i Nation COR GDP Bulgaria 6.7 4,100 Canada 0.8 22,400 Chile 3.1 12,500 China 6.6 3,600 Where COR measures corruption in a nation on a scale of 0
Given the following:GDPi = ˆ + ˆ COR + e 0 1 i i Nation COR GDP Ukraine 7.4 2,200 UK 1.4 21,200 USA 2.5 31,500 Vietnam 7.4 1,770 Where COR measures corruption in a nation on a scale of 0 (least) to
(A) Calculate the values of the structural parameters for a regression of X on Y given:(B) Interpret the value you obtained for the intercept.(C) Interpret the value you obtained for the slope
(A) Calculate the values of the structural parameters for a regression of X on Y given:(B) Interpret the value you obtained for the intercept.(C) Interpret the value you obtained for the slope
Mark the following statements TRUE or FALSE:(A) When a line is fit to observations on a scattergram so that ei 2is minimized, then Σei = 0.(B) When a line is fit to observations on a scattergram so
Distinguish between the population regression function and the sample regression function.
(A) Calculate the values of the structural parameters for a regression of X on Y given:Y X 1.8 1.2 1.7 −8.4 1.5 4.8 0.6 3.5 25.4 2.2(B) Calculate the five ei’s and show that the ei = 0 2 in this
(A) Calculate the values of the structural parameters for a regression of X on Y given:Y X 1.8 2 1.7 5 1.5 −2 0.6 5 25.4 6(B) Calculate the five ei’s and show that the ei = 0 2 in this case.
The hours of preparation (Prep) and exam scores (Exam) of four students are given below:Prep Exam 1 70 3 80 1 80 3 90(A) Calculate the values of ˆ0 and ˆ1 so that ei 2is minimized for exami = ˆ +
The savings (Sav) and number of children (Child) of four families are given below:Child Sav 2 0.03 2 0.874 0 0.374 1 1.2(A) Calculate the values of ˆ0 and ˆ1 so that ei 2is minimized for sav = ˆ +
Which of the following is (are) NOT correct? (A) Y=3+ B X; +u; (D) Y = (B) Y = + B X+u; (E) Y = + X; +u; (G) Y=B + B Xi + X+u, (H) Y = B+ B X + e (C) Y = B+B X+e; (F) Y =+B X + e (1) = + B X
Which of the following is (are) NOT correct? (A) YB+B Xi+ei (D) Y = (B) = + Xi+ei (E) = (C) Y = B+ B X+ui (F) Y = + X+e; (G) Y = B + B X 0 + X+e; (H) Y=Bo+B X; +u; +B X + (I) = B + BX;
Mark the following data sets cross-sectional, time-series, or panel data.(A) Unemployment Rate in the USA in 1960 Month Unemployment Rate JAN 5.2%FEB 4.8%MAR 5.4%APR 5.2%⁞ ⁞(B) Unemployment Rates
Mark the following data sets cross-sectional, time-series, or panel data.(A) Unemployment Rate in Various Nations in 1998 Nation Unemployment Rate Albania 10.7%Algeria 11.4%Argentina 11.4%Armenia
Data are collected on rainfall and temperature in the Bordeaux region of France to determine if weather can be used to predict the quality of the wine produced in a particular year. Can this research
A professor gathers data on student performance in college and the number of alcoholic drinks students consume to determine if alcohol consumption affects performance in college. Can this research be
(A) Specify an econometric model to test the theory that an increase in the interest rate on automobile loans will lower car sales.(B) What does this theory imply about the value of 1?
(A) Specify an econometric model to test the theory that an increase in the money supply has no effect on real GDP.(B) What does this theory imply about the value of 1?
Given the following regression: CONS = −1218 + 0.97 INC + u(A) What is the predicted value of CONS in 2005 given INC =$27,340 in 2005?(B) Actual CONS in 2005 equals $26,476. Give several reasons
Given the following regression: CONS = −1218 + 0.97 INC + u(A) What is the predicted value of CONS in 1960 given INC =$9,735 in 1960?(B) Actual CONS in 1960 equals $8,837. Give several reasons why
4 See Block and Vaaler (2004) and Cardinale (2007), respectively.
3 We discuss spread cointegration later in the chapter.
2 Unlike the Federal Reserve, the ECB does not announce an explicit target for its operational implementation of the monetary policy stance in the euro area. Instead, it provides refinancing to the
1 The nine macro variables were: industrial production, unemployment rate, capacity utilization, employment, housing starts, retail sales, personal income, durable orders and consumption.
5 How do interest rate changes affect exchange rates? What is the chain of events?
4 If you engaged in a foreign exchange transaction without a forward contract, what would that imply about you, as an investor?
3 Can you give an intuitive explanation of the link between stock market variations (volatility) and credit spreads?
2 What would you expect a low-interest-rate currency to do vs. high-interest-rate currencies? Can you explain it?
1 What could happen to credit spreads when investors ‘reach for higher yield’, in a low interest-rate environment? What does it mean?
10 Define the following terms: simultaneity bias, exogeneity and its variants.
9 What is the forward premium puzzle? Provide some evidence.
8 Explain the law of one price, the interest-rate parity, the covered interest rate parity and the uncovered interest rate parity.
7 Why is evidence or absence of cointegration among spreads important?
6 What are limited-dependent variables models? Give some examples of these models.
5 What about the yield spread’s power to explain economic activity? Provide some empirical evidence.
4 What about the predictive ability of the yield curve spread regarding recessions?Summarize some findings.
3 Campbell and Shiller (1991) examine whether the slope of the term structure predicted future changes in interest rates. Summarize their findings.
2 Can the term structure explain movements in inflation and economic activity?Summarize the findings by Estrella and Mishkin (1998).
1 What do the G-spread, I-spread and TED-spread represent for an investor?
● Econometric methodologies for exchange rates, simultaneous equations, VAR/VEC models, 2SLS and IV models
● The forward premium puzzle
● Important laws of exchange rate and empirical evidence
● Econometric methodologies for exchange rates, limited-dependent variables models (logit, probit), multinomial models (ordered and unordered logit/probit)
● The economic significance of yield spreads
● Bond yields and spreads
4 The seminal empirical work of Litterman and Scheinkman (1991) has led to the identification and conclusion that these three factors are required to explain the movements of the whole term structure
3 An arbitrage opportunity exists in a market model if there is a strategy that only guarantees a positive payoff and no initial net investment. The presence of arbitrage opportunity is inconsistent
2 A stochastic process that, on average, increases/decreases is called a submartingale/supermartingale.
1 Asset prices are determined by expectations about the paths of future economic variables. The ‘Peso problem’ focuses upon how asset prices behave when market traders have expectations about
5 Why is there a disconnect between finance and the macroeconomy in the way the short-term interest rate is modeled?

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