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ECON 322 ECONOMETRICS II - Kabarak University

This document appears to be an exam for a course in econometrics. It contains 5 questions testing various concepts in econometrics, including distinguishing between theoretical and applied econometrics, explaining steps in model estimation, interpreting dummy variables, testing hypotheses and selecting time series models.

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85 views7 pages

ECON 322 ECONOMETRICS II - Kabarak University

This document appears to be an exam for a course in econometrics. It contains 5 questions testing various concepts in econometrics, including distinguishing between theoretical and applied econometrics, explaining steps in model estimation, interpreting dummy variables, testing hypotheses and selecting time series models.

Uploaded by

11803098dan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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KABARAK UNIVERSITY

UNIVERSITY EXAMINATIONS
MAIN CAMPUS

THIRD SEMESTER, 2017/2018 ACADEMIC YEAR

EXAMINATION FOR THE DEGREE OF BACHELOR


OF COMMERCE
ECON 322: ECONOMETRICS II

STREAM: Y3S2 TIME:


2.00-4.00 PM

EXAMINATION SESSION: AUGUST


DATE: 14/08/2018
INSTRUCTIONS

(i) Answer Question ONE and ANY other TWO questions


(ii) Do not write on the question paper
(iii) Show your working clearly
QUESTION ONE
a) Explain the key feature of time series data that makes it more difficult to
analyse than cross-sectional data (4
marks)

(b) Distinguish between theoretical econometrics and applied


econometrics (4 marks)

(c) Explain the steps of estimation of an econometric model


(5 marks)

(d) The following refer to the demand for money M (sh. Billions) and
the rate of interest R (%) in 8 different economies:

M 36 50 46 30 20 35 37 61
R 6.3 4.6 5.1 7.3 8.9 5.3 6.7 3.5

Where:
(lower- case letter denote deviations of variables from their means)
Required
(i) Assuming a relationship, obtain the OLS estimators of and
(4 marks)
th
(ii) If in a 9 economy the rate of interest is R=8.1, Predict the
demand for money in this economy.
(4marks)
(iii) Estimate the standard errors of the OLS estimators
(5 marks)
(iv) It is claimed that a rise of one percentage point in the rate of
interest leads to a fall of sh. 10 billion shillings in the demand
for money. Test this claim. (4 marks)

QUESTION TWO
a) Consider the following model:
Where Y = annual expenditure on food
Di = 1 if female
= 0 if Male
Required:
(i)What is the effect of choosing female as the reference category and
not
Male (2marks)
(ii)Since we have two categories, why not assign two dummies to this
model
(4marks)
(iii) Explain the meaning of dummy variable
trap (2marks)
(b) Explain why stationarity to a series is important (2
marks)
(c) Using relevant examples explain the implications behind the AR and
MA
models.
(4 marks)
(d) Discuss the six steps involved in the Box-Jenkins approach
(6marks)

QUESTION THREE

(a) A population regression line is believed to have the form:

This equation is estimated from a random sample of size n=25 for


which, in terms of deviations from means.

Required
(i) Calculate the OLS estimates of and. (3
marks)
(ii) Compute and interpret your answer.
(4 marks)

(b) Consider the following model:

, e=

Where:
is a K*L column vector of the estimator, is an column vector of
residuals.

Required:
Show that is an unbiased estimator of (3
marks)

(c) Describe the steps involved in conducting the chow test for structural
stability. Is the chow test preferable to the dummy variable approach?
Explain why or why not.

(6 marks)
(d) Consider the following two equation simultaneous equation model
Where w and P are the percentage rates of wage and price inflation
respectively, E is a measure of excess demand in the labour market,
while and are disturbances.
Required:
(i) What is the effect of application of OLS to the price
equation above (3marks)
(ii) Explain the solutions to the problems associated to the
application of OLS in part (i) above
(2marks)

QUESTION FOUR
The following data refer to weekly sales Y, weekly advertising expenditure
X2, and the mean weekly income of customersX3:

Y 302 338 362 361 422 380 408 447 495 480
X2 14 15 26 23 30 33 33 38 42 46
X3 32 33 35 36 40 41 44 44 47 48

Required:
(i) State the assumptions of the multiple regression model.
(4 marks)
(ii) Estimate the regression equation E(Y) = β1 + β2X2 + β3X3
(4marks)

(iii) Calculate the coefficient of determination for this regression.


(3 marks)
(iv) Calculate the adjusted coefficient of determination.
(3 marks)
(v) Compute the estimated standard errors of β2 and
β3 (2marks)
(vi) Construct a 95% confidence interval for
β2 (2marks)
(vii) Test the hypothesis β3 = 0 against β3 > 0
(2marks)
QUESTION FIVE
(a) Distinguish between:
i) Stationary and Non-stationary series. (4
marks)
ii) Univariate time-series and Multivariate time series
(4marks)
(b) Identify the characteristics of a stationary time series?
(3 marks)
(c) Discuss analytically the three stages that are involved in the Box-Jenkins
process for ARIMA model selection.
(9 marks)

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