(ECON233)[2008](f)final-2047^_10245.pdf

# (ECON233)[2008](f)final-2047^_10245.pdf -...

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Econ 233 (L1) Final Exam Fall 2008 Time Allowed: 2 hours Part I. Short Questions (8 points each) 1. To decide whether 0 1 i i Y X u E E ± ± or 0 1 ln( ) i i Y X u E E ± ± fits the data better, you cannot compare the regressions 2 R . T/F (Explain briefly). Ans: True [Because the dependent variables and hence TSS are not measured in the same units.] 2. You try to explain the number of IBM shares traded in the stock market per day in 2005. As an independent variable you choose the closing price of the share. This is an example of sample selection bias. T/F (Explain briefly). Ans: False [This is an example of simultaneous equation bias, since stock price and transaction volumes are jointly determined by demand and supply for the stock.] 3. The presence of (imperfect) multicollinearity jeopardizes regression analysis because it violates the OLS assumptions needed. T/F (Explain briefly). Ans: False [Multicollinearity is a data problem and does not concern the error term, so as long as the error term is random and uncorrelated to the regressors, the OLS estimates are still BLUE.] 4. What kind of nonlinear regression model(s) cannot be estimated by OLS? Ans: Those that are not linear in parameters. Eg. Negative exponential growth model in the lecture notes. 5. What kind of model(s) can be used to specify a dependent variable which measures a sample of respondents that contain both smokers and non-smokers? Ans: Probit or Logit models. Part II. Long Questions (15 points each) 1. Consider the relationship between the expenditure on travel ( E t ) and total income ( Y t ) given by: E t = β 0 + β 1 Y t + u t (a) You suspect that the error term u t is heteroskedastic. Describe in details how you can use the Park Test to verify if this is indeed the case. (b) Suppose you suspect that the heteroskedasticity have the form Var u t = α Y t 1/3 . Write down the weighted least square model you should estimate and show that the transformed regression is homoskedastic. In what way are the (ECON233)[2008](f)final~2047^_10245.pdf downloaded by jliaa from at 2012-10-07 13:05:22. Academic use within HKUST only.

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