QUESTION 1 [25 marks]
1. Why do we study econometrics as a separate discipline?
(9)
2. Explain eight steps on how econometricians proceed in their analysis of an economic problem? (10)
3. Mention three ambiguities that must be address when constructing an econometrics model
(6)
Question 2 [25 marks]
¥ = EY |X) +4 Describe the various components of the function
(2)
Discuss the two types of error that arise in hypothetical conclusions
(6)
State the two distinct features of the interceptless model.
(4)
One of the “consequences of error of measurement in the regressand is increased variance of the estimators”.
Formulate a scenario and provide proof of this statement.
(4)
5. Consider a two-variable model where consumption as a regressand and income as a regressor.
(a) Name the parameter that is used to measure the spread of the values from their expected values?
(2)
(b) Suppose, a researcher is interested in measuring the strength of the relationship between consumption and
income, name the parameter one can use to quantify this relationship?
(2)
6. Assuming a three-variable model Y; = a, + a@2X2+a3X3, where «a, andaz3are partial regression
coefficients. You have been asked in a job interview to briefly describe the meaning of the two parameters in
this context.
(5)
QUESTION 3 [25 marks]
Given the regression output below answer the questions that follow. Where NFA
Dependent Variable: LNM2 is money supply, both in natural log.
Method: Least Squares
Sample(adjusted): 2006:02 2016:12
Included observations: 155 after adjusting endpoints
net foreign asset
Variable
Cc
LNNFA
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
Durbin- Watson stat
Coefficient
Std. Error
t-Statistic
Prob.
0.009936
0.211279
0.003298
0.023192
3.012688
9.110164
0.0030
0.0000
0.351681 Mean dependent var
0.012806
0.347444 §.D. dependent var
0.050598
0.040874 Akaike info criterion
3.543841
0.255611 Schwarz criterion
-.504571
276.6477 _ F-statistic
82.99509
2.353923 Prob(F-statistic)
0.000000
(a) Write out the regression equation estimated in this study.
(4)
(b) Interpret the estimated function in (a).
(6)
(c) Identify the regressors and regressand.
(4)
(d) What is the value of the coefficient of determination?
(3)
(e) How many parameters are in this model?
(2)
(f) What type of regression model is this?
(3)
(g) What does the abbreviation OLS stand for?
(3)
QUESTION 4 [25 marks]
1. Interpret the intercept and slope coefficients of the following regression. Y, = 56.1 -1.7 Xi where Y=% of vote
received by the incumbent president and X= unemployment rate (in percentage points)
(5)
Interpret the intercept and slope coefficients of the following regression. In Y, = 3.54 1.35 In Xi where Y= GNP
(in millions of S) X= Government spending (in mills. of dollars)
(5)
Interpret the intercept and slope coefficients of the following regression. y, = -1.8 + 45.8 In Xiwhere Y=inflation
rate (%) and X= wage rate (in NS)
(5)
Interpret the intercept and slope coefficients of the following regression. In Y, = 4,1 + 0.05 T where Y=GDP (in
mill. of dollars) and T=time trend (T=1,2,3,... representing years)
(5)
Interpret the intercept and slope coefficients of the following compound growth rate of In ¥ =4,1+0.05 T
where Y=GDP (in mill. of dollars) and T=time trend (T=1,2,3,... representing years)
(5)
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