ECS3706 EXAM PACK 2023
List any three uses of econometrics?
What is regression analysis?
Explain the estimated regression equation?
Explain total, explained and residual sum of squares?
List the steps applied in regression analysis?
Briefly explain what OLS means and what it tries to achieve....
Ans: 1) Describing economic reality (structural
analysis)
2)Testing hypothesis about economic theory (policy evaluation)
3)Forecasting economic activity
2). What is regression analysis?
Ans: Regression analysis is used to make quantitative estimates of economic
relationship that previously have been completely theoretical in nature.
3). Explain the estimated regression equation?
Ans: 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.
4). Explain total, explained and residual sum of squares?
Ans:
5). List the steps applied in regression analysis?
Ans: 1) Review the literature and develop the theoretical model.
2) Specify the model.
3) Hypothesize the expected signs of coefficients.
4) Collect the data, inspect and clean the data.
5) Estimate and evaluate the equation.
6) Document the results.
6). Briefly explain what ols means and what it tries to achieve. why should researchers use it?
Ans: OLS means ordinary least squares, it is a technique that calculates the Bs so as to
minimize the sum of p squared residuals which is calculated as (Yi-Yi)^2.
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, 7). What is the stochastic error term and why does it have to be included in a regression
equation?
Ans: The stochastic error term is added to the regression equation because it helps
capture the minor variations in Y which are not captured by the Xs. It is virtually
impossible to avoid some sort of measurement error hence the stochastic error captures
that. The underlying theory may differ from the chosen functional form hence the need for
an error term.
8). What's the best way to avoid specification bias?
Ans: To avoid specification bias the 4 important specification criteria must be followed
i.e.
1) Theory which underlies the model.
2) The statistical significance of the t-test.
3) The R^2 which determies the gooodness of fit of the whole equation.
4) Bias.
9). What is specification bias?
Ans: Specification bias occurs when an independent variable is omitted which is
relevant in the equation.
10). Are unbiased estimates always better than biased estimates? why or why not?
Ans: Unbiased estimates could mean the equation is correctly specified or an
independent variable is omitted those results in a high variance while biased estimates
may decrease the variance. The importance of each of the two would depend on the
importance of either type 1 or type 2 errors.
11). Distinguish between sequential specification searches and data mining?
Ans: 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.
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