Question 1

If the Granger and the reverse Granger test both result in not rejecting the null hypothesis, then the test is inconclusive.

Accepted Answer

A) True 
 B)False  True

Question 2

A) What is cointegration?
B) Given Yt = Bo + B1 Xt + et describe how to determine if Y and X are cointegrated. Spell out the augmented Dickey-Fuller regression involved.

Accepted Answer

A) Variables that are nonstationary to the same degree.
B)

\bullet

Run the regression: Y_t = Bo + B1 X_t + e_t

\bullet

Run the augmented Dickey-Fuller regression:
(e_t - e_t-1) = Bo + B₁e_t-1+ B₂(e_t-1 - e_t-2) + z_t

\bullet

perform a negative sign test on B1
1) Ho: B1 = 0 (e is nonstationary) Ha: B1 < 0 (e is stationary)(X and Y are not cointegrated) (X and Y are cointegrated)
2) 5%
3) If t-ratio < -tc*, reject Ho
4) the t-ratio is the usual one, but tc* is about 60% higher than tc from the usual t table. As n approaches infinity tc* approaches 2.86 from higher levels.
5) state the results of the test

Question 3

A) For the regression given in question 1., write the auxilliary regression for the Lagrange multiplier test.
B) What are the degrees of freedom for the Lagrange multiplier test in this particular case?

Accepted Answer

A) e_t = Ao + A1 EX_t + A2 WHY_t-1+ A3 e_t-1 + γ_t B) d.f. = k (from the auxiliary regression) - 1 = 4 - 1 = 3

Question 4

A) Using lags of two periods on both independent variables, write the Granger equation to test if the chicken came before the egg.
B) Staying with the CHICK/EGG example, write the regression that would be used to obtain SSRR in the following equation? $$F = \frac { \left( S S R _ { R } - \operatorname { SSR } \right) / R } { \operatorname { SSR } / ( n - k ) }$$ 
C) Write the regression that would be used to obtain SSR in the same equation?

Accepted Answer

Question 5

Nelson and Plosser's paper caused a major controversy when they showed that many macroeconomic variables are nonstationary.

Accepted Answer

A) True 
 B)False

Question 6

If the dependent variable in a regression "Granger-causes" one or more independent
variables, then the regression results are likely to be biased.

Accepted Answer

A) True 
 B)False

Question 7

The regression to find the SSRR has more explanatory variables than the regression to find SSR.

Accepted Answer

A) True 
 B)False

Question 8

The structural parameters are biased in an autoregressive model suffering from serial correlation.

Accepted Answer

A) True 
 B)False

Question 9

Given: WHYt = 2.00 - 0.15 EXt + 0.70 WHYt-1 + et
(0.10) (0.35) (0.10)$\leftarrow$standard errors
R2 = .9 DW = 2.10 n = 26
A) What is the short run impact of EX on WHY
B) What is the long run impact of EX on WHY?
C) Does this regression suffer from serial correlation according to Durbin's h-test? Show the 5-step procedure.
 $$h = \left( 1 - \frac { d } { 2 } \right) \sqrt { \frac { n } { 1 - n \left( \operatorname { var } \left( \hat { \beta } ^ { } \right) \right) } }$$

Accepted Answer

A) -0.15
B) -.15/(1-.70) = -.5
C) 1)Ho:

Question 10

C. W.J. Granger is deceased.

Accepted Answer

A) True 
 B)False

Question 11

A) List the three conditions for a variable to be stationary.
B) What is spurious correlation? A strong relationship between variables that is the result
C) Explain why two nonstationary time series are likely to be spuriously correlated.

Accepted Answer

The answer of A) List the three conditions for a...

Question 12

A) What is a correlogram (autocorrelation function)?
B) Draw the correlogram of a stationary variable. (Be sure to label the axes of your drawing.)
C) Draw the correlogram (autocorrelation function) of a nonstationary variable.

Accepted Answer

The answer of A) What is a correlogram (autocorrelation function)?
B)...

Question 13

A) Given the Eviews printout below, did the chicken come before the egg? Explain how you know.
 Pairwise Granger Causality Tests
Sample: 19511994
Lags: 2
$\begin{array}{lccc}
\hline \hline \text { Nul1 Hypothesis: } & \text { Obs } & \text { F-Statistic } & \text { Probability } \
\hline \hline \text { CHICK does not Granger Cause EGG } & 42 & 12.55461 & 0.17900 \
\text { EGG does not Granger Cause CHICK } & & 0.09849 & 0.04644 \
\hline
\end{array}$ 
B) Are the first differences of M1 (FDM1) stationary? Using the Eviews printout below, show the 5-step procedure. $$\begin{array}{l}
\begin{array} { l l l l } 
\text { ADF Test Statistic } & - 0.615077 & 1 \% \text { Critical Value* } & - 3.7667 \
&& 5 \% \text { Critical Value } & - 3.0038 \
&& 10 \% \text { Critical Value } & - 2.6417 \
\hline \hline
\end{array}\
\text { Unit root test on FDM1. }
\end{array}$$

Accepted Answer

The answer of A) Given the Eviews printout below, did...

Question 14

The auxilliary regression used in the Lagrange multiplier test is autoregressive.

Accepted Answer

A) True 
 B)False

Question 15

The Lagrange multiplier test is only for autoregressive models.

Accepted Answer

A) True 
 B)False

Question 16

It is impossible for a cross-sectional variable to be nonstationary.

Accepted Answer

A) True 
 B)False

Question 17

It is impossible for two cross-sectional variables to be spuriously correlated.

Accepted Answer

A) True 
 B)False

If the Granger and the reverse Granger test both result in not rejecting the null hypothesis, then the test is inconclusive.

A) What is cointegration? B) Given Y_t = Bo + B1 X_t + e_tdescribe how to determine if Y and X are cointegrated. Spell out the augmented Dickey-Fuller regression involved.

A) For the regression given in question 1., write the auxilliary regression for the Lagrange multiplier test. B) What are the degrees of freedom for the Lagrange multiplier test in this particular case?

Nelson and Plosser's paper caused a major controversy when they showed that many macroeconomic variables are nonstationary.

If the dependent variable in a regression "Granger-causes" one or more independent variables, then the regression results are likely to be biased.

The regression to find the SSR_R has more explanatory variables than the regression to find SSR.

The structural parameters are biased in an autoregressive model suffering from serial correlation.

C. W.J. Granger is deceased.

A) List the three conditions for a variable to be stationary. B) What is spurious correlation? A strong relationship between variables that is the result C) Explain why two nonstationary time series are likely to be spuriously correlated.

A) What is a correlogram (autocorrelation function)? B) Draw the correlogram of a stationary variable. (Be sure to label the axes of your drawing.) C) Draw the correlogram (autocorrelation function) of a nonstationary variable.

The auxilliary regression used in the Lagrange multiplier test is autoregressive.

The Lagrange multiplier test is only for autoregressive models.

It is impossible for a cross-sectional variable to be nonstationary.

It is impossible for two cross-sectional variables to be spuriously correlated.

The Nature of Econometrics

Simple Regression Analysis

Residual Statistics

Hypothesis Testing

Multiple Regression

Filters

Exam 6: Alternate Functional Forms

If the Granger and the reverse Granger test both result in not rejecting the null hypothesis, then the test is inconclusive.

A) What is cointegration? B) Given Yt = Bo + B1 Xt + et describe how to determine if Y and X are cointegrated. Spell out the augmented Dickey-Fuller regression involved.

A) For the regression given in question 1., write the auxilliary regression for the Lagrange multiplier test. B) What are the degrees of freedom for the Lagrange multiplier test in this particular case?

Nelson and Plosser's paper caused a major controversy when they showed that many macroeconomic variables are nonstationary.

If the dependent variable in a regression "Granger-causes" one or more independent variables, then the regression results are likely to be biased.

The regression to find the SSRR has more explanatory variables than the regression to find SSR.

The structural parameters are biased in an autoregressive model suffering from serial correlation.

C. W.J. Granger is deceased.

A) List the three conditions for a variable to be stationary. B) What is spurious correlation? A strong relationship between variables that is the result C) Explain why two nonstationary time series are likely to be spuriously correlated.

A) What is a correlogram (autocorrelation function)? B) Draw the correlogram of a stationary variable. (Be sure to label the axes of your drawing.) C) Draw the correlogram (autocorrelation function) of a nonstationary variable.

The auxilliary regression used in the Lagrange multiplier test is autoregressive.

The Lagrange multiplier test is only for autoregressive models.

It is impossible for a cross-sectional variable to be nonstationary.

It is impossible for two cross-sectional variables to be spuriously correlated.

The Nature of Econometrics

Simple Regression Analysis

Residual Statistics

Hypothesis Testing

Multiple Regression

Filters

A) What is cointegration? B) Given Y_t = Bo + B1 X_t + e_tdescribe how to determine if Y and X are cointegrated. Spell out the augmented Dickey-Fuller regression involved.

The regression to find the SSR_R has more explanatory variables than the regression to find SSR.