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Mfi 604 Econometrics Ii Town Campus Question Paper
Mfi 604 Econometrics Ii Town Campus
Course:Masters Of Science In Commerce
Institution: Kca University question papers
Exam Year:2014
UNIVERSITY EXAMINATIONS: 2013/2014
EXAMINATION FOR THE MASTERS OF SCIENCE (MSC) IN COMMERCE
(FINANCE AND INVESTMENT)
MFI 604 ECONOMETRICS II TOWN CAMPUS
DATE: AUGUST, 2014
TIME: 3 HOURS
INSTRUCTIONS: Answer Question One and Any Other Three Questions
QUESTION ONE (31 MARKS)
(a)
Given EViews7 statistical package, illustrate the steps you will undertake to:
(i) (2 Marks)
(ii) Run a simple OLS regression model (2 Marks)
(iii) Obtain the weighted least squares (2 Marks)
(iv)
(b)
Create a work file and import data Obtain the heteroskedasticity-consistent standard errors (2 Marks)
An econometrician from KCA University performed a regression of Y on X1, X2, X3, X4, X5
and X6. The results showed a high R-squared (0.9955) and most of the variables were
insignificant.
(i) What is the likely problem being faced?
(2 Marks)
(ii) Describe how the econometrician can formally test for this problem using the
correlation matrix and the VIF
(iii)
(c)
(6 Marks)
Discuss any 3 remedial measures that may address the problem
(6 Marks)
(i) Explain the meaning of heteroskedasticity and why it is a major problem in econometric
analysis
(ii)
(4 Marks)
Clearly, explain the white test for heteroskedasticity (5 Marks)
1
QUESTION TWO (23 MARKS)
(a)
You are given the following information:
RRS1 based on the first 30 observations = 55, degrees of freedom = 25
RSS2 based on the last 30 observations = 140, degrees of freedom = 25
Carry out the Goldfeld-Quandt test for heteroscedasticity at the 5 percent level of significance
(5 Marks)
(b)
Apart from the Goldfeld-Quandt test, highlight any other three tests for heteroscedasticity
(6 Marks)
(c)
In which ways is GLS superior to OLS with or without correcting for heteroscedasticity?
(2 Marks)
(d)
Explain two tests for autocorrelation, and any two remedial measures available to deal with this
problem
(10 Marks)
QUESTION THREE (23 MARKS)
An econometric model for a particular economy is given as:
Yt = ß0 + ß1Yt-1 + ß2It + u1t
It = ß3 + ß4Yt + ß5Qt + u2t
Ct = ß6 + ß7Yt + ß8Ct-1 + ß9Pt + u3t
Qt = ß10 + ß11Qt-1 + ß12Rt + u4t
Where Y = national income, I = net capital formation, C = personal consumption, Q = profits, P = cost
of living index and R = industrial productivity. Subscript t is time and u are stochastic disturbances.
(a) Identify the endogenous and exogenous variables
(2 Marks)
(b) Using the order condition, test for the identification status of each equation in the model
(8 Marks)
(c)
Why is OLS not a preferable method in estimating such a system of equations; and specify the
alternatives to OLS
(d)
(2 Marks)
Consider the model below:
Y1t = ß10 + ß12Y2t + a11X1t + u1t
Y2t = ß20 + ß21Y1t + a22X2t + u2t
(i) Obtain the reduced-form equations
(ii)
(6 Marks)
If the estimated reduced-form equations are given as:
Y1t = 4 + 3X1t + 8X2t
2
Y2t = 2 + 6X1t + 10X2t
Obtain the values of the structural parameters
(5 Marks)
QUESTION FOUR (23 MARKS)
(a)
A time series Yt was found to be non-stationary. What are the characteristics of this series?
(6 Marks)
(b)
Distinguish between the following terms as used in time series econometrics:
(i) (2 Marks)
(ii) AR and MA processes (2 Marks)
(iii) ARMA and ARIMA models (2 Marks)
(iv)
(c)
Trend stationary and difference stationary Cointergration and ECM (2 Marks)
Discuss the strengths and weaknesses of the unit root test as a test for stationary. Which
alternatives are available to the unit root test?
(d)
(5 Marks)
Highlight the two main tests for Cointergration (4 Marks)
QUESTION FIVE (23 MARKS)
(a)
Distinguish between ARCH and GARCH models. What is the relationship between the two
models? (4 Marks)
(b) Examine the criteria for choosing between ARCH (1) and ARCH (2) (2 Marks)
(c) An ARCH (2) model is specified as:
2
t
t=
0.000028 + 0.12125U2t-1 + 0.08718U2t-2
= (5.42)
(3.34)
(2.41)
R-squared = 0.026 and d = 2.0214
Interpret the results
(d)
(7 Marks)
A GARCH (1,1) model of daily percentage stock price changes for a certain stock market
between 1990 to 2005 gave the following:
s2t = 0.0079 + 0.072U2t-1 + 0.919s2t-1
(0.014) (0.005)
(0.006)
What conclusion can we make about volatility in the stock prices?
(e)
(6 Marks)
Explain the real life applications of the ARCH and GARCH models (4 Marks)
3
QUESTION SIX (23 MARKS)
(a)
Discuss the advantages and disadvantages of the linear probability model (LPM) in estimating
dummy-dependent variable models
(b)
(8 Marks)
The probability of a person owning a car is 60 percent. What are their odds in favor of car
ownership?
(c)
(2 Marks)
A logit model was carried out and the following results were obtained:
Dependent variable: Grade
Method: Maximum Likelihood – Binary logit
Convergence achieved after 5 iterations
variable coefficient Std error Z statistic probability
C -13.0213 4.931 -2.6405 0.0082
GPA 2.8261 1.2629 2.2377 0.0252
TUCE 0.0951 0.1415 0.6722 0.5014
PSI 2.3786 1.0645 2.2345 0.0255
McFadden R2 = 0.3740
LR Statistic (3 df) = 15.40419
Where: Grade = 1 if student scores A, but 0 otherwise
GPA = Grade Point Average
TUCE = score on matriculation exam upon admission
PSI = 1 if a new teaching method is used, but 0 otherwise
Interpret the results
(13 Marks)
4
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