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Econometrics I Question Paper

Econometrics I

Course:Master Of Economics

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
SUPPLEMENTARY EXAMINATION FOR THE DEGREE OF
MASTERS OF ECONOMICS

EES 500: ECONOMETRICS I

DATE: Thursday
26th November 2009
TIME: 9.00 am-12.00 Noon

INSTRUCTIONS
Answer ALL questions
Question One
a)
What is meant by mutilcollinearity?

[1.5marks]
b)
The variances of least square estimates become infinitely large in presence of
multicollinearity:
True or false, Proof the statement mathematically

[6marks]
c)
Using inverse least square method, illustrate how multicollinearity can be solved.

[7marks]

d)
State three causes of the disturbance
term.
[3marks]

Question Two
a)
What is meant by mean square error (MSE)?

[3marks]
b)
Prove that the mean square error equals the variance plus the square of the bias of
the
estimator:

MSE(ˆb)
ˆ
= Var b + (biasb)2
ˆ

[10marks]

Page 1 of 2
c)
“R-squared will never decrease when another variable is added to a regression

equation”. To prove whether the movement of R-squared is significant, analysis

of variance is used. Show that F can be used as a test of significance of

R-squared.

[4.5marks]

Question Three
a)
Outline
the
goals
of
econometrics.
[2.5marks]
b)
Given that ˆ
ß (X ' X ) 1-
=
X 'Y , proof that ßˆ is an unbiased estimator of the true
parameter
ß

[6marks]
c)
State and explain three characteristics of a good estimator.
[9marks]

Question Four
a)
Outline four sources of autocorrelation.

[4marks]
b)
Given the AR (1) scheme, show that Var (u
E u
[8marks]
t ) =
( 2t)=s 2e

c)
Proof that the variance of y is equal to the variance of the error term ut.

[5.5marks]

Page 2 of 2

Econometrics I Question Paper

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