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Econ220B_final_05

# Econ220B_final_05 - 1 Econ 220B James Hamilton Final Exam...

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–1– Econ 220B James Hamilton Final Exam Winter 2005 DIRECTIONS: No books or notes of any kind are allowed. Answer all questions on separate paper. 250 points are possible on this exam 1.) (80 points total) An economist is interested in estimating the price elasticity of petroleum supply in the United States. She reasons that the log of demand ( q d t ) depends on the log of the relative price of petroleum ( p t ) and the log of U.S. real GDP ( y t ) , whereas supply ( q s t ) depends on price and the log of proved petroleum reserves ( r t ) : q d t = ap t + by t + u t q s t = cp t + dr t + v t . We assume that the market is in equilibrium so that q d t = q s t = q t . Suppose that the vector ( q t , p t , y t , r t ) 0 is stationary and ergodic and that the vector ( u t , v t ) 0 is a martingale dif- ference sequence with respect to u t 1 , u t 2 , ..., u 1 , v t 1 , v t 2 , ..., v 1 , r t , r t 1 , ..., r 1 , y t , y t 1 , ..., y 1 with E ( u 2 t ) = σ 2 u , E ( v 2 t ) = σ 2 v , E ( u t v t = 0) , and E ½· u t v t ¸¯ ¯ ¯ ¯ y t , r t ¾ = · 0 0 ¸ . a.) (30 points) Write down a formula for a consistent estimate of c . Describe the steps you could follow in order to generate this estimate from an OLS computer package.

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