Preview

Midterm Exam Ii Answers

Good Essays
Open Document
Open Document
2070 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Midterm Exam Ii Answers
Econ 400
B. Brown

Spring 2008
Midterm Exam II: Answers

Answer three of the following questions. You must answer question 5. The questions are weighted equally. You have 75 minutes. You may use a calculator and one side of an 8.5 × 11 as a cheat sheet. Relevant tables are attached. Please return the exams to my office by classtime on Tuesday.
Brevity is recommended.
1. Professor I. M. Economist asked his research assistant to estimate the parameters of the regression model
Yi = α + βXi + γZi + δWi + ui .
He suspected that multicollinearity might be a problem and suggested an analysis of the possibility. Suppose you are the research assistant.
a. Explain exactly what is meant by multicollinearity in this model. Extreme multicollinearity means that one of the RHS variables is perfectly linearly related to the remaining variables. Near extreme means that the correlation between one of the RHS variables and a linear combination of the remaining variables is close to one.
b. What would the consequences of collinearity be for estimation and inference? OLS will still be unbiased, consistent and BLUE (BUE under normality). Likewise the usual statistic, such as the t-ratios, will have the usual distribution, such as the t-distribution, under the null hypothesis. Under the alternative hypothesis, however, there will be loss of power since the variance of the estimates on the collinear terms will become highly variable.
c. How might you go about detecting the presence and severity of collinearity? If the coefficient estimate of the suspected collinear term is significant, then collinearity is not a problem. If the coeffcient is insignificantly different from zero when considered alone but the possible collinear terms reject a test of the null hypothesis that they all are zero, then collinearity is a problem.
d. Given that collinearity is present and poses serious complications, what is a possible approach to solving or circumventing the problem. (i)

You May Also Find These Documents Helpful

  • Good Essays

    Mm207 Mid Term

    • 990 Words
    • 4 Pages

    3. In the following scenario what is the statistic and the parameter it would estimate.…

    • 990 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Selected Answer: One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.…

    • 1806 Words
    • 8 Pages
    Good Essays
  • Satisfactory Essays

    Leadership

    • 402 Words
    • 2 Pages

    1) According to the case, I think there are two main problems as obstacles to growing Linear Systems in the mid-nineties.…

    • 402 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Quiz Answers For Test 2

    • 2169 Words
    • 18 Pages

    immediately passed a set of labor laws that greatly improved the working conditions and wages of workers in 1830.…

    • 2169 Words
    • 18 Pages
    Good Essays
  • Good Essays

    Assignment 231541251

    • 449 Words
    • 2 Pages

    d) Estimate the model, using OLS, and interpret the estimate of β4. Find “het.-robust” standard errors and compare these with the usual OLS standard errors.…

    • 449 Words
    • 2 Pages
    Good Essays
  • Good Essays

    MM207 Mid Term

    • 1210 Words
    • 5 Pages

    3. In the following scenario what is the statistic and the parameter it would estimate.…

    • 1210 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Econometric Exam

    • 1011 Words
    • 5 Pages

    d) Are the results of (b) and (c) in accordance with your expectations? If any of the tests are statistically insignificant, give a suggestion as to what may be the reason.…

    • 1011 Words
    • 5 Pages
    Satisfactory Essays
  • Good Essays

    Multicollinearity

    • 561 Words
    • 3 Pages

    One problem that can arise in multiple regression analysis is multicollinearity. Multicollinearity is when two or more of the independent variables of a multiple regression model are highly correlated. Technically, if two of the independent variables are correlated, we have collinearity; when three or more independent variables are correlated, we have multicollinearity. However, the two terms are frequently used interchangeably. The reality of business research is that most of the time some correlation between predictors (independent variables) will be present. The problem of multicollinearity arises when the inter-correlation between predictor variables is high. This relationship causes several other problems, particularly in the interpretation of the analysis.…

    • 561 Words
    • 3 Pages
    Good Essays
  • Good Essays

    After running model three whose variables are citric acid, residual sugar, and free sulfur dioxide in SAS the results of the variance inflation factors showed no signs of multicollinearity. The next step was to run a complete regression analysis of model three. The residual by…

    • 582 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Econometrics Notes

    • 356 Words
    • 2 Pages

    Here, the H0 is a joint hypothesis with n restrictions (the number of coefficients equated to 0).…

    • 356 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Factor Analysis

    • 1118 Words
    • 5 Pages

    v. Typically, the factors will be independent. The correlation between two factors is zero and there is no overlap of information…

    • 1118 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Practice Midterm

    • 551 Words
    • 3 Pages

    Show all your work and calculations. Partial credit will be given for work that is partially correct. Points…

    • 551 Words
    • 3 Pages
    Good Essays
  • Good Essays

    1. Consider a regression model of relating Y (the dependent variable) to X (the independent…

    • 1445 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    ECONOMETRICS HKU

    • 2461 Words
    • 10 Pages

    • When these were true, the standard errors, t statistics and F statistics were exact.…

    • 2461 Words
    • 10 Pages
    Powerful Essays
  • Satisfactory Essays

    BUS 434 Week 1 Quiz

    • 336 Words
    • 3 Pages

    7. All but which one of the following assumptions are included within the model of perfect comp...…

    • 336 Words
    • 3 Pages
    Satisfactory Essays