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Exam 2

# Exam 2 - 1 You are forecasting future commodity prices like...

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1. You are forecasting future commodity prices, like gold and silver prices. Describe a good method to check the accuracy of your forecast. 2. What is autocorrelation in terms of a linear regression model? How can you detect an AR(1) process? How do you correct for it? How can you detect an AR(4) process? How do you theoretically correct for it? 3. If autocorrelation or heteroscedasticity is present, what can you say about the parameter estimates, standard errors, t-statistics, and F-test from a regular Linear Regression that does not correct these problems? 4. What is a polynomial trend regression? When do you stop adding terms to a polynomial trend regression? 5. What is heteroscedasticity? How do you detect heteroscedasticity? 6. What is the Durbin-Watson Statistic? Does it have limitations? Please list a rough scale, when DW =0, DW = 2, and DW =4. 7. What is Ridge Regression? When do you use it? How do you change the least square estimator for b = (X T X) -1 X T Y.?

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