Answer the following related questions

1. Violating which of the classical linear regression model assumption will lead to an inconsistent OLS estimator? [1] 2. State two methods that can be used to estimate simultaneous equation regression models. [2] 3. In a system of equations given below, Y's are endogenous while X's are exogenous. Which of the equation is over identified? Explain. [2] Y, = do + a Y2 + agy3 + d4X, + asX2 + 14 Y2 = Bo+ RY, + B2X1+ 12 Y3 = Yo + V1Y2 + Us 4. State two properties of a good instrument when applying an instrumental variable approach? [2] 5. State one advantage of using a Vector Autoregression (VAR) model. [1] 6. Name the tool used to produce a graph that plots the correlation of each residual with lags of itself and with all other residuals in a VAR model. [1] 7. In the following VAR model, write down the null hypothesis for the Granger causality test of y2 does not Granger cause y ? [1] yl = 10 + Billi + B12)2-1 + VIIVir-2 + V12)/21-2 + 611/1-3+ 012)/21-3 + 1 1, V21 = (20 + B21)/1-1 + Bzzyz-1 + Y 21>/1-2 + V 22.>/21-2 + 621/11-3 + 622.)21-3 + U21 8. Name the decomposition that identifies the structural shock from the reduced form shock in a VAR model. [1] 9. In a VAR model, name the method of analysing the proportion of the movements in the dependent variables that are due to their "own" shocks, versus shocks to the other variables. [1] 10. The diagram below depicts the plot of a series X. State a property of the series that suggests the series may not be stationary. [1] 167 12- 8- 50 100 150 200 250 300 350 400 450 500 11. Suppose stock price yr follows the process: y = / + pyri + ut. If >1, what can be said about the effect of the stock price shock us on stock price y? [1] 12. A plot of the series X is depicted below. Write down the appropriate regression specification for a unit root test of series X. [1] 30 20 15 10 1 40 79 118 157 196 235 274 313 352 391 430 469