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ECS3706_EXAM_PACK_2023
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ECS3706EXAM
PACK
2023
ECONOMETRICS STUDY PACK
MAY/JUNE 2016
,Question 1
(a) (i) Describing economic reality
(ii) Testing hypothesis about economic theory
(iii) Forecasting future economic activity
(b) (i) regression analysis is used to make quantitative estimates of economic
relationship that previously have been completely theoretical in nature.
(ii) usually population size may be too large or unknown therefore inference is made on
the sample drawn from the population using the estimated regression equation
which is the statistical technique that attempts to explain movements in one
dependent variable given independent variables
(iii) TSS is the squared variation of Y around its mean it is measured by
∑ . ESS is the variation of Y around its mean which is explained by the
equation it is measured by ∑ . RSS is the variation of Y around its mean
which is not explained by the equation, measured by ∑ .
TSS= ESS+RSS
2
, (c) is the co-efficient of determination which measures the goodness of fit of the whole
equation. The problem with is that whenever an independent variable is added it
will increase even when it is an irrelevant variable. measures the percentage of the
variation of Y around its mean that is explained by the regression equation, but
adjusted for the degrees of freedom. Usually a higher fit does not guarantee a good
estimation because the fit can be only measure used.
Question 2
(a)(i) Theory which underlies the model
(ii) The statistical significance of the t-test
(iii) The which determines the goodness of fit of the whole equation (iv) Bias
(b) Sequential specification involves the initial specification of an equation and
estimates it, then adding other independent variables until a plausible equation is found
while data mining involves estimating a variety of alternative specifications before that
best equation has been chosen.
(c) (i) Specification bias occurs when an independent variable is omitted which is
relevant in the equation.
3
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