Consider the following regression model: log(y) = β0 + β1x1 + β2x1 x3+ β3x3 + u, with βk≠0 (k=0,1,...,3). This model will suffer from functional form misspecification if _____. correct answers the interaction term x1x3 is omitted from the model
Which of the following correctly identifies ...
Econometrics Midterm MCQs || Already Passed.
Consider the following regression model: log(y) = β0 + β1x1 + β2x1 x3+ β3x3 + u, with βk≠0
(k=0,1,...,3). This model will suffer from functional form misspecification if _____. correct
answers the interaction term x1x3 is omitted from the model
Which of the following correctly identifies a difference between cross-sectional data and time
series data? correct answers Time series data is based on temporal ordering, whereas cross-
sectional data is not.
A stochastic process refers to a: correct answers sequence of random variables indexed by time.
A regression model suffers from functional form misspecification if _____.
a. a key variable is categorical variable.
b. the dependent variable is a dummy variable.
c. the coefficient of a key variable is zero. correct answers none of the above is right
A proxy variable _____. correct answers is used when data on a key independent variable is
unavailable
A stochastic process {xt: t = 1,2,....} with a finite second moment [E(xt2) < ∞] is covariance
stationary if: correct answers E(xt) is constant, Var(xt) is constant, and for any t, h ≥ 1, Cov(xt,
xt+h) depends only on 'h' and not on 't'
Which of the following is true?
a. A functional form misspecification can occur if the level of a variable is used when the
logarithm is more appropriate.
b. A functional form misspecification occurs only if a key variable is uncorrelated with the error
term.
c. A functional form misspecification does not lead to biasedness in the ordinary least squares
estimators.
d. A functional form misspecification does not lead to inconsistency in the ordinary least squares
estimators. correct answers A functional form misspecification can occur if the level of a
variable is used when the logarithm is more appropriate.
Which of the following statements is true of dynamically complete models?
a. There is scope of adding more lags to the model to better forecast the dependent variable. b.
The problem of serial correlation does not exist in dynamically complete models.
c. All econometric models are dynamically complete.
d. Sequential endogeneity is implied by dynamic completeness. correct answers The problem of
serial correlation does not exist in dynamically complete models.
Which of the following is true of Regression Specification Error Test (RESET)?
a. It tests if the functional form of a regression model is misspecified.
b. It detects the presence of dummy variables in a regression model.
, c. It helps in the detection of heteroskedasticity when the functional form of the model is
correctly specified.
d. It helps in the detection of multicollinearity among the independent variables in a regression
model. correct answers It tests if the functional form of a regression model is misspecified.
Which of the following assumptions is needed for the plug-in solution to the omitted variables
problem to provide consistent estimators?
a. The error term in the regression model exhibits heteroskedasticity.
b. The error term in the regression model is uncorrelated with all the independent variables. c.
The proxy variable is uncorrelated with the dependent variable.
d. The proxy variable is correlated with the unobserved key variable. correct answers The error
term in the regression model is uncorrelated with all the independent variables.
A covariance stationary time series is weakly dependent if: correct answers the correlation
between the independent variable at time 't' and the independent variable at time 't + h' goes to 0
as h → ∞.
In the model yt = α0 + α1xt1 + α2xt2 + ..... + αkxtk + ut, the explanatory variables, xt = (xt1,
xt2 ...., xtk), are sequentially exogenous if: correct answers E(ut|xt , xt-1, ..., x1) = E(ut) = 0 for
any t
If ut refers to the error term at time 't' and yt - 1 refers to the dependent variable at time 't - 1', for
an AR(1) process to be homoskedastic, it is required that: correct answers Var(ut|yt - 1) = Var(yt|
yt-1) = σ2
The sample size for a time series data set is the number of: correct answers time periods over
which we observe the variables of interest.
The model yt = yt - 1 + et, t = 1, 2, ... represents a: correct answers random walk process.
Which of the following statements is true?
a. A random walk process is stationary.
b. The variance of a random walk process increases as a linear function of time.
c. Adding a drift term to a random walk process makes it stationary.
d. The variance of a random walk process with a drift decreases as an exponential function of
time. correct answers The variance of a random walk process increases as a linear function of
time.
f a process is said to be integrated of order one, or I(1), _____. correct answers the first
difference of the process is weakly dependent
The model: Yt = β0 + β1ct + ut, t = 1,2,.......n, is an example of a(n): correct answers finite
distributed lag model
Refer to the following model: yt = α0 + β0st + β1st-1 + β2st-2 + β3st-3 + ut. This is an example
of a(n): correct answers finite distributed lag model of order 3
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