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For Q.1.3 - 1.5 use the information provided below: Assuming you estimate the following two models: y: = B1+ Bz * X2 + By X's
For Q.1.3 - 1.5 use the information provided below: Assuming you estimate the following two models: y: = B1+ Bz * X2 + By" X's + u. (eq. 1) yo = Bit B2" Xa+ B,"X's + B." Xin + vi (eq. 2) where u, and v, are iid disturbances and Xx is an irrelevant variable which does not enter into the data generating process for yr. Q.1.3 Will the value of the below statistic be higher for the second model than the first? Explain your answers. (1) R2, (2) (ii) Adjusted R2 (4) Q.1.4 Briefly explain two other methods that you would use to choose the best model between (eq. 1) and (eq. 2). (6) Q.1.5 From an econometric modelling perspective (ignore time series modelling), briefly detail the steps followed in a proper modelling exercise. (Hint: use a mind map with at least 5 steps) (10)Question 2 (Marks: 21) Q.2.1 In your own words describe a stationary process? (3) Q.22 Explain how you would informally test for a unit root in a time series. (2) (2) Q.23 How and why is the DF different from the ADF test? Q.24 What are unit root tests besides the ones mentioned is Q.2.3 could be used? Briefly explain ) each test 1n your
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