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Econ 332 Econometrics 2 Question Paper

Econ 332 Econometrics 2

Course:Bachelor Of Science In Economics And Statistics

Institution: Chuka University question papers

Exam Year:2013

CHUKA

UNIVERSITY

UNIVERSITY EXAMINATIONS

THIRD YEAR EXAMINATION FOR THE AWARD OF DEGREE OF
BACHELOR OF SCIENCE (ECONOMICS & STATISTICS)

ECON 332: ECONOMETRICS II

STREAMS: BSC. (ECON & STATS) Y3S2 TIME: 2 HOURS

DAY/DATE: THURSDAY 18/4/2013 11.30 A.M. – 1.30 P.M.
INSTRUCTIONS:

Answer ALL Questions
Start each question on a new page
Do not write on question paper

Question 1

Consider the following simple linear regression function:

? y?_1=ß_0+ß_1 x_i+e_i for i=1,…,n

Express this function in matrix form [2 marks]

Compute the product X’X ; where X’ is the transpose of X [5 marks]

Compute the product of X’Y ; where X’ is the transpose of X [3 marks]

Consider the following hypothetical data on weekly consumption expenditure as a function of weekly family income.

Family consumption 80 100 120 140 160 180 200 220 240 260

Family income 70 65 90 95 110 115 120 140 155 150

Given that family consumption is a function of family income, what would be the dependent and independent variables in the data above? [2 marks]

What do you understand by “least squares estimation method”. [3 marks]

Use matrix method to determine the equation of the regression line of family
income on family consumption and give an interpretation of the coefficients.
[12 marks]

A family has family income of 100, predict what would be the family consumption.
[3 marks]

Question 2

Explain the following as used in econometrics

Autocorrelation, Multicollinearity and Heteroscedasticity. [6 marks]

Assumptions underlying the Durbin Watson (d test). [6 marks]

Indicators of Multicollinearity. [4 marks]

Consequences of Heteroscedasticity. [4 marks]

Question 3

Consider the following structural model:

Y_1t= ß_10+ß_12 Y_2t+y_11 X_lt+µ_1t
Y_2t=ß_20+ß_21 Y_1t+y_22 X_2t+µ_2t

Which are the endogenous and exogenous variables of the system? [2 marks]

With definition of the same, determine if the structural equations are identified.
[3 marks]

What happens to identification if it is known a priori that y_11=0? [2 marks]

Determine the reduced form equations for this model. [10 marks]

Why is it advantageous to use Two Stage Least Squares to solve simultaneous
equations? [3 marks]

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Econ 332 Econometrics 2 Question Paper

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