metricsexam1f07sol

metricsexam1f07sol - Econometrics Exam 1 October 24, 2007...

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Econometrics Exam 1 By writing your PID below, you are indicating October 24, 2007 your intention to abide by the honor pledge: PID: This exam consists of ten short questions ( worth four points apiece ) and three long questions ( worth twelve points each ) , for a total of 76 points. You have 50 minutes to answer all completely and clearly in the space provided. 1. What is “classical measurement error”, and how does it affect the OLS estimator? The defining characteristic of “classical” measurement error is that it is uncorrelated with any of the variables in the model. CME causes OLS to be biased: E [ ˆ ! OLS ] = " var( x ) / var( x ) + var( m ) ( ) . 2. You estimate the effect of a percentage change in the price of widgets on the percentage decrease in demand for widgets, using the equation ln DEMAND i = 1 + 2 ln PRICE i + e i ( where 2 is interpreted as the own - price elasticity ) . You estimate that ˆ 2 = " 0.78 , with a standard deviation of 0.21 . How would you test the hypothesis that demand is unit elastic ( H 0 : 2 = " 1 ) against the alternative that it is not ( H A : 2 " # 1 ) , without any help from Stata? You would calculate a t - statistic and compare this to critical values of the t - distribution. In this case, t = ( ! 0.78 ! ( ! 1)) / 0.21 . If the absolute value of t is greater than the critical value at your confidence level in a sample with these degrees of freedom ( greater than 1.96, for the 95 % confidence level in a large sample ) , you would reject the null hypothesis. 3.
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metricsexam1f07sol - Econometrics Exam 1 October 24, 2007...

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