MULTIPLE CHOICES MID-TERM

1. Which of the following null hypotheses could we test using an F-test? (i) b2 = 0, (ii)
b2 = 1 and b3 + b4 = 1, (iii) b3xb4 = 1, (iv) b2 + b3 + b4 = 1

a. (ii) and (iv) only

b. (i) and (ii) only

c. (i), (ii), and (iv) only

d. (i), (ii), (iii) and (iv)

2. Which of these is not a viable ‘solution’ for heteroscedasticity?

a. Using heteroscedasticity-consistent standard error estimates

b. Transforming the variables into logs

c. Taking the first differences of the series

d. Using generalised least squares ifr the form of heteroscedasticity is known

3. Which of the following is a correct interpretation of a “95% confidence interval” for

a regression parameter?

a. In repeated samples, we would derive the same estimate for the coefficient 95% of the
time

b. We are 95% sure that the interval contains the true value of the parameter

c. We are 95% sure that the interval contains our estimate of the coefficient

d. We are 95% sure that our estimate of the coefficient is correct

4. The method of estimating econometric models which involves fitting a line to the
data by minimising the sum of squared residuals is the

a. Method of ordinary least squares

b. Method of maximum likelihood

c. Method of moments

d. Method of generalised squared moments

5. What would be the consequences for the OLS estimator if autocorrelation is
present in a regression model but ignored?

a. It will be biased

b. It will be inefficient

c. All of A., B. and C. will be true.

d. It will be inconsistent

6. Which of the following would NOT be a potential remedy for the problem of
multicollinearity between regressors?

a. Transforming two of the explanatory variables into ratios

b. Collecting higher frequency data on all of the variables

c. Transforming the data into logarithms

d. Removing one of the explanatory variables

7. Which estimation results of the two methods will give the same regression results
of slope coefficients?

a. LSDV and between estimator

b. first differences estimator within transformation

c. LSDV and first differences estimator

d. LSDV and within transformation

8. Appropriate modelling of limited dependent variables that are assigned numerical

values having a natural ordering can be done using: (I) Probit models, (II) Logit
models, (III) Ordered probit models, (IV) Ordered logit models

a.III and IV only

b.I and II only

c.II and III only

d.I only

9. To test the validity of instruments in the 2SLS model, which test can be used?

a.Wu-Hausman test

b.Durbin-Watson test

c.Sanderson-Windmeijer test

d.Sargan/Hansen J test (test of overidentifying)

10. If a regression equation contains an irrelevant variable, the parameter estimates

will be

a.Consistent and asymptotically efficient but biased

b.Consistent and unbiased but inefficient

c.Consistent, unbiased and efficient

d.Inconsistent

11. Which one of the following is the most appropriate as a definition of R2 in the
context that the term is usually used?

a.It is the proportion of the total variability of y that is explained by the model

b.It is the correlation between the fitted values and the residuals

c.It is the correlation between the fitted values and the mean

d.It is the proportion of the total variability of y about its mean value that is explained
by the model

12. If the residuals of a regression on a large sample are found to be heteroscedastic

which of the following might be a likely consequence? (i) The coefficient estimates
are biased, (ii) The standard error estimates for the slope coefficients may be too
small, (iii) Statistical inferences may be wrong

a. (i), (ii) and (iii)

b.(i) only
c.(i) and (ii) only

d.(ii) and (iii) only

13. A researcher wants to evaluate the effect of a variable z (binary variable) on the
relationship between the independent variable x and the dependent variable y. Which
model should the researcher use ?

a.y_t=α + βx_t + γz_t + δz_t x_t + u_t

b.y_t=α + βx_t + γz_t + u_t

c.y_t=α + βx_t + γz_t + δz_t^2 + u_t

d.y_t=α + βx_t + γz_t + δy_(t-1) x_t + u_t

14. Which one of the following is NOT an assumption of the classical linear regression
model?

a.The disturbance terms have zero mean

b.The explanatory variables are uncorrelated with the error terms.

c.The disturbance terms are independent of one another.

d.The dependent variable is not correlated with the disturbance terms

15. Which of the following statements are true about parameter stability tests? (I)
Parameter stability tests test the assumption that the estimated parameters of a
model are constant for the entire sample, (II) Chow test and predictive failure tests are
two types of parameter stability tests, (III) Backward and forward predictive failure
tests are two types of parameter stability tests, (IV) Parameter stability tests examine
violations of the classical linear regression model assumptions

a. I, II, III and IV

b. I and II only

c. I only

d. I, II and III only

16. Which of these is not a reason for adding a disturbance term to a regression
model?
a. Some determinants of the effect variable may be omitted from the model

b.Some determinants of the effect variable may be unobservable

c.There may be errors in the way that the dependent variable is measured which cannot be
modelled

d.Some determinants of the independent variable may be omitted from the model

17. The value of the Durbin Watson test statistic in a regression with 4 regressors
(including the constant term) estimated on 100 observations is 3.6. What might we
suggest from this?

a.The residuals are negatively autocorrelated

b.The residuals are positively autocorrelated

c.There is no autocorrelation in the residuals

d.The test statistic has fallen in the intermediate region

18. Suppose you have calculated the following regression results: y = 1.25 + 0.64x.
The standard errors of alpha and beta are 1.22 and 0.58, respectively. Using the test of
significance approach, what is the test statistic value of a hypothesis to test whether
the true value of beta statistically different from zero?

a.0.91

b.1.10

c.Cannot say without more information

d.-0.62

19. Which of the following conditions must be fulfilled for the Durbin Watson test to
be valid? (i) The regression includes a constant term, (ii) The regressors are non-
stochastic, (iii) There are no lags of the dependent variable in the regression, (iv)
There are no lags of the independent variables in the regression

a.(i), (ii), (iii) and (iv)

b.(i), (ii) and (iii) only

c.(i) and (ii) only

d.(i), (ii), and (iv) only

20. Entity fixed effects models

a. Allow the intercept in the regression model to differ cross-sectionally but not over time,
while all of the slope estimates are fixed both cross-sectionally and over time

b.Any of the above could be true depending on the model specification

c.Allow the slope in the regression model to differ cross-sectionally but not over time, while
the intercept estimates are fixed both cross-sectionally and over time

d.Allow the intercept in the regression model to differ over time, while all of the slope
estimates are different both cross-sectionally and over time

21. Standard errors

a. Give us an idea of the precision of estimates of alpha and beta

b. Measure the reliability of the independent variables

c. Measure the reliability of the dependent variables

d. Give us an idea of the deviation of the errors from their mean

22. Which of these is not a consequence of ignoring autocorrelation if it is present?

a. The coefficient estimates derived using OLS are not the best linear unbiased estimators

b. The coefficient estimates derived using OLS are biased

c. Standard error estimates are inappropriate

d. The coefficient estimates derived using OLS are inefficient

23. Which of the following would probably NOT be a potential “cure” for non-normal
residuals?

a.Transforming two explanatory variables into a ratio

b.Removing large positive residuals

c.Using a procedure for estimation and inference which did not assume normality
d.Removing large negative residuals

24. Which of the following statements is correct concerning the conditions required
for OLS to be a usable estimation technique?

a.The model must be linear in the residuals

b.The model must be linear in the variables
c.The model must be linear in the parameters
d.The model must be linear in the variables and the parameters

25. Which of these is a characteristic of financial data?

a.It is easy to separate underlying trends from random and uninteresting features

b.They are considered to be very noisy

c.The number of observations is usually very small

d.They are observed at much lower frequencies than macroeconomic data

26. Which of the following null hypotheses could we test using an F-test? (i) b2 = 0, (ii)
b2 = 1 and b3 + b4 = 1, (iii) b3xb4 = 1, (iv) b2 + b3 + b4 = 1

a.(ii) and (iv) only

b.(i) and (ii) only

c.(i), (ii), (iii) and (iv)

d.(i), (ii), and (iv) only

27. To deal with endogeneity, which regression model can be applied?

a. Cochrane-Orcutt procedure
b. logistic regression
c. general least squares regression GLS
d. instrumental variable regression

28. Consider a bivariate regression model with coefficient standard errors calculated
using the usual formulae. Which of the following statements is/are correct regarding
the standard error estimator for the slope coefficient? (i) It varies positively with the
square root of the residual variance (s), (ii) It varies positively with the spread of X
about its mean value, (iii) It varies positively with the spread of X about zero, (iv) It
varies positively with the sample size T

a. (i), (ii), (iii) and (iv)

b. (i) and (iv) only
c. (i), (ii) and (iv) only
d. (i) only

29. To select between fixed effect and random effects models, which test should be
used?

a.F test for all regression coefficients of the entities’ dummy variable equal to 0

b.Wald test

c.Breusch-Pagan test

d.Hausman test

What is the most appropriate interpretation of the assumption cov(ui,uj)=0

concerning the regression disturbance terms?

a.
The errors are linearly dependent of one another
b.
The errors are nonlinearly independent of one another
c.
The errors are linearly independent of one another
d.
The covariance of the errors is constant and finite over all its values

Which of these is a test for heteroscedasticity?

a.White test

b.Bera-Jarque test

c.Breusch-Godfrey test

d.Breusch-Jagan test