Question 1

The concepts of exogeneity, strict exogeneity, and predeterminedness

Accepted Answer

A) are defined in such a way that strict exogeneity implies exogeneity. 
B) Can be used interchangeably. 
C) Are defined in such a way that exogeneity implies strict exogeneity. 
D) Correspond to endogeneity, strict endogeneity, and lagged endogenous variables. 
A) are defined in such a way that strict exogeneity implies exogeneity. 
B) Can be used interchangeably. 
C) Are defined in such a way that exogeneity implies strict exogeneity. 
D) Correspond to endogeneity, strict endogeneity, and lagged endogenous variables.

Question 2

HAC standard errors should be used because

Accepted Answer

A) they are convenient simplifications of the heteroskedasticity-robust standard errors. 
B) conventional standard errors may result in misleading inference. 
C) they are easier to calculate than the heteroskedasticity-robust standard errors and yet still allow you to perform inference correctly. 
D) when there is a structural break, then conventional standard errors result in misleading inference. 
A) they are convenient simplifications of the heteroskedasticity-robust standard errors. 
B) conventional standard errors may result in misleading inference. 
C) they are easier to calculate than the heteroskedasticity-robust standard errors and yet still allow you to perform inference correctly. 
D) when there is a structural break, then conventional standard errors result in misleading inference.

Question 3

Estimation of dynamic multipliers under strict exogeneity should be done by

Accepted Answer

A) instrumental variable methods. 
B) OLS. 
C) feasible GLS. 
D) analyzing the stationarity of the multipliers. 
A) instrumental variable methods. 
B) OLS. 
C) feasible GLS. 
D) analyzing the stationarity of the multipliers.

Question 4

The distributed lag regression model requires estimation of $( r + 1 )$ coefficients in the case of a single explanatory variable. In your textbook example of orange juice prices and cold weather, $r = 18$. With additional explanatory variables, this number becomes even larger.
Consider the distributed lag regression model with a single regressor
$$Y _ { t } = \beta _ { 0 } + \beta _ { 1 } X _ { t } + \beta _ { 2 } X _ { t - 1 } + \beta _ { 3 } X _ { t - 2 } + \ldots + \beta _ { r + 1 } X _ { t - r } + u _ { t }$$ (a) Early econometric analysis of distributed lag regression models was interested in reducing the number of parameters by approximating the coefficients by a polynomial of a suitable degree, i.e., $\beta _ { i + 1 } \approx f ( i )$ for $i = 0,1 , \ldots , r$. Let $f ( i )$ be a third degree polynomial, with coefficients $\alpha _ { 0 } , \ldots , \alpha _ { 3 }$. Specify the equations for $\beta _ { 1 } , \beta _ { 2 } , \beta _ { 3 } , \beta _ { 4 }$ and $\beta _ { r + 1 }$.

Accepted Answer

By placing restrictions on the

Question 5

The long-run cumulative dynamic multiplier a. cannot be calculated since in the long-run, we are all dead.
b. is the sum of all individual dynamic multipliers.
c. is the coefficient on $X _ { t - r }$ in the standard formulation of the distributed lag model.
d. is the difference between the coefficient on $X _ { t - 1 }$ and $X _ { t - r }$.

Accepted Answer

The answer of The long-run cumulative dynamic multiplier a. cannot...

Question 6

The Cochrane-Orcutt iterative method is

Accepted Answer

A) a special case of GLS estimation. 
B) a method to compute HAC standard errors. 
C) a special case of maximum likelihood estimation. 
D) a grid search for the autoregressive parameters on the error process. 
A) a special case of GLS estimation. 
B) a method to compute HAC standard errors. 
C) a special case of maximum likelihood estimation. 
D) a grid search for the autoregressive parameters on the error process.

Question 7

Ascertaining whether or not a regressor is strictly exogenous or exogenous ultimately requires all of the following with the exception of

Accepted Answer

A) economic theory. 
B) institutional knowledge. 
C) expert judgment. 
D) use of HAC standard errors. 
A) economic theory. 
B) institutional knowledge. 
C) expert judgment. 
D) use of HAC standard errors.

Question 8

Your textbook used a distributed lag model with only current and past values of Xt-1
coupled with an AR(1)error model to derive a quasi-difference model, where the error
term was uncorrelated. (a) Instead use a static model $Y _ { t } = \beta _ { 0 } + \beta _ { 1 } X _ { t } + u _ { t }$ here, where the error term follows an AR(1). Derive the quasi difference form. Explain why in the case of the infeasible GLS estimators you could easily estimate the $\beta s$ by OLS.

Accepted Answer

The answer of Your textbook used a distributed lag model...

Question 9

GLS involves

Accepted Answer

A) writing the model in differences and estimating it by OLS, using HAC standard errors. 
B) truncating the sample at both ends of the period, then estimating by OLS using HAC standard errors. 
C) checking the AIC rather than the BIC in choosing the maximum lag-length of the regressors. 
D) transforming the regression model so that the errors are homoskedastic and serially uncorrelated, and then estimating the transformed regression model by
OLS) 
A) writing the model in differences and estimating it by OLS, using HAC standard errors. 
B) truncating the sample at both ends of the period, then estimating by OLS using HAC standard errors. 
C) checking the AIC rather than the BIC in choosing the maximum lag-length of the regressors. 
D) transforming the regression model so that the errors are homoskedastic and serially uncorrelated, and then estimating the transformed regression model by
OLS)

Question 10

(Requires Appendix material) Your textbook states that in "the distributed lag regression model, the error term $u _ { t }$ can be correlated with its lagged values. This autocorrelation arises, because, in time series data, the omitted factors that comprise $u _ { t }$ can themselves be serially correlated." (a)Give an example what the authors have in mind.

Accepted Answer

There is one parameter less to

Question 11

The Gallup Poll frequently surveys the electorate to quantify the public's opinion of the
president.Since 1945, Gallup settled on the following wording of its presidential poll:
"Do you approve or disapprove of the way (name)is handling his job as president?"
Gallup has not changed its presidential question since then, and respondents can answer
"approve," "disapprove," or "no opinion."
You want to see how this approval rating is related to the Michigan index of consumer
sentiment (ICS).The monthly survey, conducted with a minimum sample of 500, asks
people if they feel "better/worse off" with regard to current and future conditions.
(a)To estimate dynamic causal effects, you collect quarterly data from 1962:I - 1998:II for
the United States.You allow a binary variable for each presidency to capture the intrinsic
popularity of the President.Furthermore, you eliminate observations that include a
change in party for the presidency by using a binary variable, which takes on the value of
one during the first quarter of the year after the election.Finally, a friendly political
scientist provides you with (i)an "events" variable, (ii)a "Vietnam" binary variable, and
(iii)a "honeymoon" variable, which measures the effect of a higher popularity of a
president immediately following the election.(The coefficients of these variables will not
be reported here.)
Assuming that consumer sentiment is exogenous, you estimate the following two
specifications (numbers in parenthesis are heteroskedasticity- and autocorrelation-
consistent standard errors) $$\begin{array}{l}
\begin{array} { l } 
\widehat { \text { Approval } _ { t } } = 26.08 + 0.178 \times \text { ICS } _ { t } + 0.232 \times \text { ICS } _ { t - 1 } ; R ^ { 2 } = 0.667 , \text { SER } = 7.00 \
\quad\quad\quad\quad\quad\quad\text { (8.83) } ( 0.120 )\quad\quad\quad\quad\quad(0.135) \
\end{array}\
\begin{aligned}
\widehat { \text { Approval } _ { t } = } = & 26.08 + 0.178 \times \Delta I C S _ { t } + 0.411 \times I C S _ { t - 1 } ; R ^ { 2 } = 0.667 , S E R = 7.00 \
& \begin{array} { l l } 
\text { (8.17) } ( 0.120 ) & ( 0.089 )
\end{array}
\end{aligned}
\end{array}$$ What is the difference between the two specifications? What is the advantage of
estimating the second equation, if any?

Accepted Answer

If approval ratings depend on economic v

Question 12

Sensitivity analysis of the results may include the following with the exception of

Accepted Answer

A) stability over time analysis of the estimated multipliers. 
B) using homoskedasticity only rather than HAC standard errors. 
C) investigation of omitted variable bias. 
D) looking at different computations of the HAC standard errors. 
A) stability over time analysis of the estimated multipliers. 
B) using homoskedasticity only rather than HAC standard errors. 
C) investigation of omitted variable bias. 
D) looking at different computations of the HAC standard errors.

Question 13

Money supply is linked to the monetary base by the money multiplier.Macroeconomic
textbooks tell you that the central bank cannot control the money supply, but it can
control the monetary base.As a result, you decide to specify a distributed lag equation of
the growth in the money supply on the growth in the monetary base.One of your peers
tells you that this is not a good idea for modeling the relationship between the two
variables.What does she mean?

Accepted Answer

Although the monetary base is one of the

Question 14

Consider the following model $Y _ { t } = \beta _ { 0 } + \beta _ { 1 } X _ { t } ^ { e } + u _ { t }$ where the superscript "e" indicates expected values. This may represent an example where consumption depends on expected, or "permanent," income. Furthermore, let expected income be formed as follows:
$$X _ { t } ^ { e } = X _ { t - 1 } ^ { e } + \lambda \left( X _ { t } - X _ { t - 1 } ^ { e } \right) ; \quad 0 < \lambda < 1$$ (a)In the above expectation formation hypothesis, expectations are formed at the end of the
period, say the $31 ^ { \text {st } }$ of December, if you had annual data.Give an intuitive explanation for
this process.

Accepted Answer

The Koyck

Question 15

Consider the following distributed lag model $Y _ { t } = \beta _ { 0 } + \beta _ { 1 } X _ { t } + \beta _ { 2 } X _ { t - 1 } + u _ { t }$, where $u _ { t } = \phi _ { 1 } u _ { t - 1 } + \tilde { u } _ { t } , \tilde { u } _ { t }$ is serially uncorrelated, and $X$ is strictly exogenous. (a)How many parameters are there to be estimated between the two equations?

Accepted Answer

The above model can be specified in quas

Question 16

The  95%  confidence interval for the dynamic multipliers should be computed by using the estimated coefficient $\pm$

Accepted Answer

A)   1.96  times the RMSFE. 
B)   1.96  times the HAC standard errors. 
C)   1.96 , since the HAC errors are standardized. 
D)   1.64  times the HAC standard errors since the alternative hypothesis is one-sided. 
A)   1.96  times the RMSFE. 
B)   1.96  times the HAC standard errors. 
C)   1.96 , since the HAC errors are standardized. 
D)   1.64  times the HAC standard errors since the alternative hypothesis is one-sided.

Question 17

To estimate dynamic causal effects, your textbook presents the distributed lag regression
model, the autoregressive distributed lag model, and a quasi-difference representation of
the distributed lag model with autoregressive errors.Using a simple example, such as a
distributed lag model with only the current and past value of X and an AR(1)model for
the error term, discuss how these models are related.In each case suggest estimation
methods and evaluate the relative merit in using one rather than the other.

Accepted Answer

The student's answer should follow the d

Question 18

The distributed lag model relating orange juice prices to the Orlando weather reported in
the text was of the form $$\% C h g P _ { t } = \beta _ { 0 } + \beta _ { 1 } F D D _ { t } + \beta _ { 2 } F D D _ { t - 1 } + \beta _ { 3 } F D D _ { t - 2 } + \ldots + \beta _ { 19 } F D D _ { t - 18 } + u _ { t }$$ (a)Suppose that an agricultural economist tells you that a freeze in December is more
harmful than a freeze in the other months.How would you modify the regression to
incorporate this effect? How would you test for this December effect?

Accepted Answer

An additional regressor (TempFreeze)can

Question 19

Infeasible GLS a. requires too much memory even for today's PCs.
b. uses complicated interative techniques.
c. cannot be calculated since it also uses quasi differences for $X _ { t }$.
d. assumes the parameters of the error autocorrelation process to be known.

Accepted Answer

The answer of Infeasible GLS a. requires too much memory...

Question 20

GLS is consistent and BLUE if a. $X$ is predetermined.
b. the error process is AR(1).
c. $X$ is strictly exogenous.
d. all the roots are inside the unit circle.

Accepted Answer

The answer of GLS is consistent and BLUE if a....

The concepts of exogeneity, strict exogeneity, and predeterminedness

HAC standard errors should be used because

Estimation of dynamic multipliers under strict exogeneity should be done by

The Cochrane-Orcutt iterative method is

Ascertaining whether or not a regressor is strictly exogenous or exogenous ultimately requires all of the following with the exception of

GLS involves

Sensitivity analysis of the results may include the following with the exception of

The 95% confidence interval for the dynamic multipliers should be computed by using the estimated coefficient $\pm$

Infeasible GLS a. requires too much memory even for today's PCs. b. uses complicated interative techniques. c. cannot be calculated since it also uses quasi differences for $X _ { t }$ . d. assumes the parameters of the error autocorrelation process to be known.

GLS is consistent and BLUE if a. $X$ is predetermined. b. the error process is AR(1). c. $X$ is strictly exogenous. d. all the roots are inside the unit circle.

Economic Questions and Data

Review of Probability

Review of Statistics

Linear Regression With One Regressor

Regression With a Single Regressor: Hypothesis Tests and Confidence Intervals

Linear Regression With Multiple Regressors

Hypothesis Tests and Confidence Intervals in Multiple Regression

Nonlinear Regression Functions

Assessing Studies Based on Multiple Regression

Regression With Panel Data

Regression With a Binary Dependent Variable

Instrumental Variables Regression

Experiments and Quasi-Experiments

Introduction to Time Series Regression and Forecasting

Additional Topics in Time Series Regression

The Theory of Linear Regression With One Regressor

The Theory of Multiple Regression

Filters

Exam 15: Estimation of Dynamic Causal Effects

The concepts of exogeneity, strict exogeneity, and predeterminedness

HAC standard errors should be used because

Estimation of dynamic multipliers under strict exogeneity should be done by

The Cochrane-Orcutt iterative method is

Ascertaining whether or not a regressor is strictly exogenous or exogenous ultimately requires all of the following with the exception of

GLS involves

Sensitivity analysis of the results may include the following with the exception of

The 95% confidence interval for the dynamic multipliers should be computed by using the estimated coefficient ±\pm±

Infeasible GLS a. requires too much memory even for today's PCs. b. uses complicated interative techniques. c. cannot be calculated since it also uses quasi differences for XtX _ { t }Xt​ . d. assumes the parameters of the error autocorrelation process to be known.

GLS is consistent and BLUE if a. XXX is predetermined. b. the error process is AR(1). c. XXX is strictly exogenous. d. all the roots are inside the unit circle.

Economic Questions and Data

Review of Probability

Review of Statistics

Linear Regression With One Regressor

Regression With a Single Regressor: Hypothesis Tests and Confidence Intervals

Linear Regression With Multiple Regressors

Hypothesis Tests and Confidence Intervals in Multiple Regression

Nonlinear Regression Functions

Assessing Studies Based on Multiple Regression

Regression With Panel Data

Regression With a Binary Dependent Variable

Instrumental Variables Regression

Experiments and Quasi-Experiments

Introduction to Time Series Regression and Forecasting

Additional Topics in Time Series Regression

The Theory of Linear Regression With One Regressor

The Theory of Multiple Regression

Filters

The 95% confidence interval for the dynamic multipliers should be computed by using the estimated coefficient $\pm$

Infeasible GLS a. requires too much memory even for today's PCs. b. uses complicated interative techniques. c. cannot be calculated since it also uses quasi differences for $X _ { t }$ . d. assumes the parameters of the error autocorrelation process to be known.

GLS is consistent and BLUE if a. $X$ is predetermined. b. the error process is AR(1). c. $X$ is strictly exogenous. d. all the roots are inside the unit circle.