# 2009 - SCHOOL OF ECONOMICS ECON 2206 ECON 3290(Arts...

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SCHOOL OF ECONOMICS ECON 2206 / ECON 3290 (Arts) INTRODUCTORY ECONOMETRICS FINAL EXAMINATION SESSION 1, 2009 1. TIME ALLOWED - 2 Hours. 2. READING TIME = 10 Minutes 3. THIS EXAMINATION PAPER HAS 9 PAGES 4. TOTAL NUMBER OF QUESTIONS - 6. 5. ANSWER ALL QUESTIONS. 6. ALL QUESTIONS ARE OF EQUAL VALUE 7. TOTAL MARKS AVAILABLE FOR THIS EXAMINATION - 60. 8. THE MARKS AWARDED TO EACH PART OF A QUESTION ARE INDICATED. 9. CANDIDATES MAY BRING THEIR OWN CALCULATORS TO THE EXAM 10. STATISTICAL TABLES ARE PROVIDED AT THE END OF THE EXAM PAPER 11 .ALLANSWERSMUSTBEWRITTENINPEN . PENCILSMAYBEUSEDONLYFORDRAWING , SKETCHING OR GRAPHICAL WORK. 12. THIS PAPER MAY BE RETAINED BY THE CANDIDATE Please see over

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ANSWER ALL SIX QUESTIONS REMINDER: When performing statistical tests, always state the null and alternative hypothe- ses, the test statistic and it’s distribution under the null hypothesis, the level of signi f cance and the conclusion of the test. Question 1. (10 Marks). (i) Consider the multiple regression model: y = β 0 + β 1 x 1 + β 2 x 2 + u Brie f y explain the consequences of measurement error in the dependent variable, y , for the OLS estimators of β 1 and β 2 when: (a) the measurement error is uncorrelated with the independent variables x 1 and x 2 ( 2marks ) (b) the measurement error is correlated with the independent variable x 1 ( ) (ii) Consider the following model used to the salary of chief executive o cers: salary = β 0 + β 1 sales + β 2 mktval + β 3 sales × mrkval + u where sales is the F rm’s total sales revenue for the previous year (measured in \$millions) and mrkval is the F rm’s market value (also measured in \$millions). In terms of the parameters of the population model, what is the e f ect on salary of an extra \$1million of sales in the previous year ? (2 marks ) (iii) What is the meaning of the term “ contemporaneous exogeneity ” as used in the context of time series data ? What is the di f erence between contemporaneous exogeneity and the zero conditional mean (ZCM) assumption in the multiple regression model for time series data ? (2 marks ) (iv) What does it mean for an estimator to be “consistent” and does this di f er from “unbiasness” ? Explain. (2 marks ). Please see over 2
Question 2. (10 Marks in total) The variable heavyd is a binary variable equal to one if a person is a heavy drinker (of alcohol), and zero otherwise. The estimates for the linear probability model explaining heavyd was: d heavyd =0 . 467 0 . 007 log( price )+0 . 056 log( income . 028 educ 0 . 0009 educ 2 0 . 014 age (0 . 210) (0 . 034) (0 . 029) (0 . 006) (0 . 0003) (0 . 06) [0 . 131] [0 . 031] [0 . 018] [0 . 005] [0 . 0002] [0 . 05] n = 1403 ,R 2 . 233 where price is the price of beer in the individual’s local area, income is monthly income, educ is years of education and age is measured in years. The usual OLS standard errors are reported in parentheses (.), and the heteroskedasticity-robust standard errors are reported in brackets [.].

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2009 - SCHOOL OF ECONOMICS ECON 2206 ECON 3290(Arts...

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