HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

FINAL EXAM
ECO 303 – ECONOMETRICS

Date: 28/12/2007 Time: 180 minutes

Allowable materials:
1. Non programmable calculator
2. Unmarked, non-electronic Foreign Language dictionary
3. One-sided A4 formula sheet
4. Unmarked Z, t-Student, F, Chi-squared, Autocorrelation tables

PART I: MULTIPLE-CHOICE QUESTIONS (10*2=20 marks): Circle the answers

Question 1: A two-variable Population Regression Function (PRF) can be written as:

A. Yi = β 1 + β 2 X 2i + u i B. Yi = βˆ1 + βˆ 2 X 2i + uˆ i

C. Yi = β 1 + β 2 X 2i D. Yˆi = βˆ1 + βˆ 2 X 2i

Question 2: In a two-variable model Yi = β 1 + β 2 X 2i + u i , β 1 and β 2 are known as:

A. partial regression coefficients
B. slope coefficient and intercept respectively
C. intercept and slope coefficient respectively
D. intercept and partial regression coefficient respectively

Question 3: Which is the best formula to represent the method of Ordinary Least Squares
(OLS)?
A. ∑ uˆ = ∑ (Y
i i) − Yˆi → min B. ∑ uˆ = ∑ (Yˆ − Y ) → min
i i i

C. ∑ uˆ = ∑ (Y − Yˆ ) ∑ uˆ (
= ∑ Yi − Yˆi )
2 2
2
i i i → min D. 2
i → max

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Question 4: Which sentence given below is incorrect?
A. The disturbance term is a random variable that has well-defined probabilistic properties.
B. The disturbance term can take negative value only.
C. The disturbance term is an unobservable random variable.
D. The disturbance term can take positive or negative values.

Question 5: Heteroscedasticity happens when which of the following OLS assumption is

not fulfilled?
A. E (u i X i ) = 0 ( )
B. Cov X i , X j = 0 with i ≠ j

( )
C. E u i2 X i = σ 2 D. cov(u , u ) = 0 with i ≠ j
i j

Question 6: In the case of existing less than perfect multicollinearity problem, OLS
estimators’ variances will appear to be than normally.
A. larger B. smaller
C. unchanged D. indeterminate

Question 7: Given a two-variable model Yi = β 1 + β 2 X 2i + u i , the estimator β 2 in the

presence of autocorrelation is:
A. a BLUE B. a linear unbiased but not the best estimator
C. a best linear but biased estimator D. a best unbiased but non-linear estimator

Question 8: Which indicator shows how well a regression line fits through the scatter of
data points?
A. F-test B. R2
C. t-test D. Durbin-Watson test

Question 9: For the regression equation Q = 10 - 10X1 + 2.5X2, which of the following
statements is true?
A. X2 is the more important variable because it is positive
B. When X1 decreases by 10 units, Q decreases by 1 unit.
C. When X2 decreases by 2.5 units, Q decreases by 1 unit.
D. When X1 decreases by 1 units, Q increases by 10 unit.

Question 10: Which of the following equation is AR(2)

A. ut = ρ1.ut-1 + vt. B. ut = ρ1.ut-1 + ρ1.ut-2 + vt.
C. ut = ρ1.ut + ρ2.ut-2 + vt. D. ut = ρ1.ut-1 + ρ3.ut-3 + ρ2.ut-2 + vt.

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PART II: SHORT-ANSWER QUESTION (5*6=30 marks)
From now on, write down your answer in the space provided.
Suppose a researcher run the following model:
ln C t = β1 + β 2 ln I t + β 3 ln Lt + β 4 ln H t + β 5 ln At + u
Where C = 12-month average price of copper (cent per pound)
I = 12-month average index of industrial production
L = 12-month average London Metal Exchange Price of copper (pounds sterling)
H = number of housing starts per year (thousand of units)
A = 12-month average price of aluminum (cents per pound)
And she obtained the estimated result as:
ln Ĉ t = -1.5004 +0.4675 lnIt +0.2794 lnLt -0.0051 lnHt +0.4411 lnAt
t-value = (-1.495) (2.816) (2.435) (-0.036) (4.144)

R2=0.936 SEE=0.1217 DW=0.9549 N=30

And
ût 0.5208 uˆ t −1
= R2 = 0.271 SEE=0.098 N=29
t-value = (3.123) R 2 = 0.271 DW=1.463

1a. Interpret the model

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1b. Can you tell us the statistically significants of each coefficients (do the t-test) ?
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2. Using the data, calculate F-Statistics and Adjusted R2.What is the role of Adjusted R2
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 3. If you think that an AR(1) mechanism characterizes autocorrelation in the data,
outline the steps of Cochrane-Orcutt iterative method to remedy the autocorrelation.
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Suppose you used the dummy variable to run the saving-income regression for the
years from 1970 to 1995 and obtained the estimated results as follows:
Savingt = 1.0161 +152.478 Dt +0.0803 Incomet -0.0051(Dt •Incomet)
se = (0.0503) (160.6090) (0.0401) (0.0021)

N=30 R2=0.936 R 2 =0.9258 SEE=0.1217 DW=0.9549

Where Dt = 1 for 1981-1995
= 0 for 1970-1980

4. Write the estimated saving-income relationships for the two different periods? And
test whether there is any structural change in the regression?
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5. If your professor said that you should use the “Chow” test to carry out the test of
stability among the data, what are the procedures of “Chow” test and the F-statistic?
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PART II: PROBLEMS (25+25=50 marks)

Problem 1 (25)

Dependent Variable: Y
Method: Least Squares
Date: 12/17/07 Time: 12:34
Sample: 1971Q3 1975Q2
Included observations: 16

Variable Coefficient Std. Error t-Statistic Prob.

C 13354.60 6485.419 2.059173 0.0619

X2 -3628.186 635.6282 (1) 0.0001
X3 2633.755 1012.637 (2) 0.0232
Log(X4) -19.25394 (3) -0.627274 0.5422

R-squared 0.777929 Mean dependent var 7645.000

Adjusted R-squared (5) S.D. dependent var 2042.814
S.E. of regression 1076.291 Akaike info criterion 17.01275
Sum squared resid 13900824 Schwarz criterion 17.20589
Log likelihood -132.1020 F-statistic (4)
Durbin-Watson stat 2.316836 Prob(F-statistic) 0.000316

1. Write the regression function and briefly interpret the coefficients

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2. Calculate the missing values in the regression results and explain its significations
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3. Which of the coefficients are individually statistically significant at 5% level ?
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Which of the coefficients are individually statistically not significant at 5% level ?
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4. Can you establish a test of the overall significance of the regression ?
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5. Adding a new variable X5 into the previous regression give the following statistics
R-squared=0.834699 Adjusted R-squared 0.774590
Can you establish a test to tell the relevant of the new variable ?
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Problem 2 (25)

Dependent Variable: LOG(GDP)

Method: Least Squares
Date: 12/17/07 Time: 12:53
Sample: 1955 1974
Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

C -1.652419 0.606198 -2.725873 0.0144

LOG(EMPLOYMENT) 0.339732 0.185692 1.829548 0.0849
LOG(CAPITAL) 0.845997 0.093352 9.062488 0.0000

R-squared 0.995080 Mean dependent var 12.22605

Adjusted R-squared 0.994501 S.D. dependent var 0.381497
S.E. of regression 0.028289 Akaike info criterion -4.155221
Sum squared resid 0.013604 Schwarz criterion -4.005861
Log likelihood 44.55221 F-statistic 1719.231
Durbin-Watson stat 0.425667 Prob(F-statistic) 0.000000

1. Write the regression function and briefly interpret the coefficients

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2. Do you suspect that there is multicollinearity in this regression ? If yes, what is the
appropriate remedy for it ?
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3. Based on D-W d-test, what can you conclude about the model’s autocorrelation at 5%?
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4. Here is the test for higher-order autocorrelation, what can we conclude and what
can we do to remedy the problem ?
Breusch-Godfrey Serial Correlation LM Test:

F-statistic 11.47680 Prob. F(4,13) 0.000329

Obs*R-squared 15.58628 Prob. Chi-Square(4) 0.003628

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 12/17/07 Time: 13:06
Sample: 1955 1974
Included observations: 20
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C 0.310750 0.362198 0.857954 0.4065

LOG(EMPLOYMENT) -0.162713 0.115827 -1.404796 0.1835
LOG(CAPITAL) 0.095078 0.061766 1.539324 0.1477
RESID(-1) 0.755437 0.276014 2.736946 0.0170
RESID(-2) 0.454766 0.373943 1.216137 0.2456
RESID(-3) -0.132332 0.371660 -0.356057 0.7275
RESID(-4) -0.691515 0.342205 -2.020766 0.0644

R-squared 0.779314 Mean dependent var 1.06E-15

Adjusted R-squared 0.677459 S.D. dependent var 0.026759
S.E. of regression 0.015197 Akaike info criterion -5.266235
Sum squared resid 0.003002 Schwarz criterion -4.917729
Log likelihood 59.66235 F-statistic 7.651202
Durbin-Watson stat 2.403310 Prob(F-statistic) 0.001133

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5. The White Heteroscedasticity test is also provided. Can you tell us the conclusion ?...
White Heteroskedasticity Test:

F-statistic 5.604074 Prob. F(4,15) 0.005788

Obs*R-squared 11.98210 Prob. Chi-Square(4) 0.017485

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 12/17/07 Time: 13:13
Sample: 1955 1974
Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

C 0.888452 0.568223 1.563561 0.1388

LOG(EMPLOYMENT) -0.316106 0.229935 -1.374761 0.1894
(LOG(EMPLOYMENT))^2 0.017354 0.012110 1.433076 0.1723
LOG(CAPITAL) 0.089342 0.089277 1.000725 0.3328
(LOG(CAPITAL))^2 -0.003619 0.003429 -1.055508 0.3079

R-squared 0.599105 Mean dependent var 0.000680

Adjusted R-squared 0.492200 S.D. dependent var 0.000789
S.E. of regression 0.000562 Akaike info criterion -11.91658
Sum squared resid 4.74E-06 Schwarz criterion -11.66765
Log likelihood 124.1658 F-statistic 5.604074
Durbin-Watson stat 1.651712 Prob(F-statistic) 0.005788

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6. What is your final conclusion of the model ? (at most 5 lines)
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Free Space
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GOOD LUCK

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