92-Worksheet - Econometrics II

Unity University - College of Distance Education Work sheet for Econometrics II-92
UNITY UNIVERSITY
COLLEGE OF DISTANCE AND CONTINUING EDUCATION
DEPARTMENT OF ECONOMICS
ECONOMETRICS II (Econ 2062)
92
WORKSHEET
Name:_________________________________________________________
ID No.________________________________________________________
Centre: _______________ Semester _____________ Academic Year ____________
This is a test paper you are expected to do on your own. It carries 25 points. The test paper
should be completed and mailed to the School of Distance and Continuing Education for
evaluation. Do not try to complete the worksheet until you have covered all the lessons and
exercises in the course material.
Any questions in the course that you have not been able to understand should be stated on a
separate sheet of paper and attached to this worksheet. Your tutor will clarify them for you.
After completing this test paper, be certain to write your Name, Id No and Address on the first
page. Your Name and Id No on the other pages only.
Instruction: Attempt all of the following questions

1
1. State the conditions for Weak stationary.( 1.5point)

2. Suppose that the total mark that students score in Econometrics II depends on their
program(Whether he/she attended the class regularly or not).Then
A. Specify the model with Total mark as the dependent variable and class attendance as an
explanatory variable.( 1.5 point)
B. Find E(Y/Xi=0) and E(Y/Xi=1) ( 1.5 point)
C. Interpret your results. ( 1 point)
3. Consider the model
Ct =b0 +b1 C t−1 +b2 Y t +ε 1t (1)
Y t =I t +Ct , (2 )
I t =a0 +a1 Y t +a 2 Y t−1 +a3 r t +ε 2 t , (3 )
Where; C, I, Y, and r are, respectively, consumer expenditures, investment, income, and the
interest rate. Assume that
ε 1 and ε 2 are not auto correlated and are independent of r .
t
A. List the endogenous variables and the predetermined variables in the model.( 1.5 point)
B. How would you estimate equation (1)? (1.5 point)
C. How would you estimate equation (3)? ( 1.5 point)
4. Take as a model of wage-price behavior:
W t =a0 +a1 (UN )t +a 2 P t +ε 1t ,
Pt =b 0 +b 1 M t +b 2 (UN )t + b3 W t +ε 2t ,
Where:
W = the percentage change in wages,
UN = the rate of unemployment,
P = the percentage change in prices,
Mt = the percentage change in the money supply, and
ε 1 and ε 2 = disturbance terms .
Assume that
ε 1 t and ε 2t have zero means, constant variances, are not auto correlated, and are
independent of (UN)t and Mt.

A. Are the above equations identified? Explain. If so what type of identification is it?
(1.5 point)
B. Outline an estimation procedure for the identified equation.(1.5 point)
5. Consider the model
2
Lt =a 0 +a 1 W t +a2 St +u1 t , (1)
W t =b 0 +b1 Lt +b2 Pt +u2 t , (2)
Where:
L = the amount of labor employed,
W= the wage rate,
S = sales,
P = a measure of the productivity of labor.
A. Obtain the reduced-form equations for L t and Wt. (1 point)
B. Outline a technique for estimating equation (1). (1 point)
6. Consider the two-equation model
Y 1t = a 1 +b 1 X 2t +c 1 Y 2t +ε 1 t , (1 )
Y 2t =a 2 +b 2 X t +c 2 Y 1t +ε 2t , (2)
Where Xt is a predetermined variable and

ε 1 and ε 2 satisfy our standard assumptions.
Required: Are both equations identified? Why or why not? (Hint: use the order condition for
identification) (1.5 point)
7. Suppose that private investment spending is such that
I it = a+b1 r it +b 2 S i(t−1)+uit , i = 1, ... , N,
r it =r t +b 3 I it +ε it ,
Where:
Iit = investment expenditures of the ith firm at time t,
rit = the rate of interest it must pay for investment funds,
Si(t-1) = its sales in period t – 1 , and
rt = the economy-wide average interest rate for investment funds,
We assume that these N firms are large so that the level of their investment expenditure affects the interest
ε .
rate they face. Assume the standard conditions concerning u it and it Assume also that we have only
cross-sectional data.
Required: Discuss whether or not the equations are identified. (Hint: use the rank condition for
identification) (2.5 point)
10. Consider the following regression result of Personal Consumption Expenditure (PCE):
PCE=233.08+1.64t-0.06PCEt-1 ………………………….(1)
τ (taw)statistics 12.5 2.50 1.56
3
and also ∆PCE=450+6.9t-0.002PCEt-1
τ (taw)statistics 10.11 3.30 10.2………………………………...(2)
A. Formulate the hypothesis for a unit root test(1.5 point)

B. Assuming that the table τ (taw) value is 1.577, do you accept or reject the Null hypothesis? Why?
(1.5 point)
C. What will happen if PCE of equation 1 is used as one variable of time-series regression model?
Why? (1.5 point)
D. What will happen if PCE of equation 2 is used as one variable of time-series regression model?
Why? (1.5 point)

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Unity University - College of Distance Education Work sheet for Econometrics II-92

Centre: _________ Semester _ Academic Year ______

Instruction: Attempt all of the following questions

1. State the conditions for Weak stationary.( 1.5point)

3. Consider the model

Ct =b0 +b1 C t−1 +b2 Y t +ε 1t (1)

I t =a0 +a1 Y t +a 2 Y t−1 +a3 r t +ε 2 t , (3 )

independent of (UN)t and Mt.

5. Consider the model

Lt =a 0 +a 1 W t +a2 St +u1 t , (1)

W t =b 0 +b1 Lt +b2 Pt +u2 t , (2)

Where Xt is a predetermined variable and

τ (taw)statistics 12.5 2.50 1.56

and also ∆PCE=450+6.9t-0.002PCEt-1

τ (taw)statistics 10.11 3.30 10.2………………………………...(2)

A. Formulate the hypothesis for a unit root test(1.5 point)

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