SVKM’s NMIMS

ANIL SURENDRA MODI SCHOOL OF COMMERCE

Academic Year: 2020-2021

Program: B.Sc.Finance Year: III Semester: VI

Subject: Econometrics Batch: 2018-21
Date: Time:
Marks: 25 No. of pages:

Answer all questions

Each question carries 5 marks

1.

0.6
residuals square

0.5
0.4
0.3
0.2
0.1
0
0 0.1 0.2 0.3 0.4 0.5 0.6

Predicted Y

a. Consider the given plot of residuals square and predicted Y. What do you think may be a problem
in the data? (1)

b. What statistical test would you use to test whether the problem is significant or not? Explain the
test. (2)

c. Consider an error process that is autoregressive of order 2. Explain the statistical test that you
would perform to test whether the errors are significantly autocorrelated or not. (2)

2.

a. Find a), b), c), d) blank cells in the following table. Show all workings clearly (2)
 SUMMARY OUTPUT

Regression Statistics
Multiple R 0.77
R Square 0.59
Adjusted R Square 0.52
Standard Error 0.35
Observations 50.00

ANOVA
df SS MS F Significance F
Regression a) 7.54 1.08 d) 0.0000
Residual 42.00 b) c)
Total 49.00 12.80

b. The following results are from a study done on individuals who grew up with disadvantaged
backgrounds. Let poverty be a dummy variable equal to 1, if an individual is currently living below
the poverty line, and 0 otherwise. The variable ‘age’ is age in years and ‘educ’ is the total years of
schooling. Let ‘vocat’ be a dummy variable equal to 1 if an individual gets vocational training, 0
otherwise. Using a random sample of 850 individuals, you run a logistic regression and obtain the
following coefficients: (3)

Variable Coefficient
Constant 0.453
age -0.016
educ -0.087
vocat -0.049

Interpret the coefficient of education in this equation

What is the probability of a person living below the poverty line who is a 40 years old with 12 years
of schooling and with vocational training?
3. Consider the chart below:

a. Write the equation of the exchange rate series as depicted in the above chart. (1)

b. To test the stationarity of the above series, you have conducted an Augmented Dickey-Fuller test.
The value of the tau-statistic turns out to be -5.38 and the tau-critical value is -7.91. Do you think the
exchange rate series is stationary? Explain. (2)

c. Assuming the series is non-stationary, what will you do to make it stationary? After making it
stationary, the series reverts to a mean value of 69.38. Write the equation of this series. (2)

4.

a. You have quarterly data on Wholesale Price Index (wpi) using which you want to estimate an
ARIMA model to forecast wpi. The wpi series is a pure random walk, and the residuals turned out to
be stationary. Also given are the ACF and PACF plots of dwpi, where dwpi=wpit-wpit-1.

Correlogram
1.5

1
acf
0.5 lower
upper
0
0 2 4 6 8 10 12 14 16 18 20
-0.5
 Correlogram
1.2
1
0.8
0.6
pacf
0.4
lower
0.2
upper
0
-0.2 0 2 4 6 8 10 12 14 16 18 20
-0.4
-0.6

Determine the p,d,q orders for estimating an ARIMA(p,d,q) model. Clearly state the regression
equation of the model. (2)

b. Consider two times series variables Yt and Xt, where Yt is the dependent variable and Xt is the
independent variable. The residuals from the regression of Yt and Xt are stationary. (3)

What does it say about the relationship between Yt and Xt.

Write the equation of the appropriate regression model that you will be estimating in this case.
Interpret the coefficients of the regression model.

5.

a. Consider the following regression equation:

hrsemp=46.67+26.25grant-.98ln(sales)-6.07ln(employ), where hrsemp is hours of training per

employee in a firm, grant is a dummy variable equal to one if the firm received a job training grant
and zero otherwise. The variables sales and employ represent annual sales and number of
employees respectively.

Interpret the coefficients of the variables grant and ln(sales). (2)

You have performed a Box-Cox transformation on hrsemp and employ. The transformation
parameter value turns out to be 0 for hrsemp and 2 for employ. Write the regression equation that
you will be estimating in this case. (1)

b. You are exploring the relationship between number of days a student is absent during the school
year with maths and language standardized test score and gender. Gender is a dummy variable
equal to one if female, zero otherwise. The following are the values of the parameter estimates from
the Poisson regression model:
 intercept 2.287

Math standardized test scores (X1) -.0035

language standardized test scores (X2) -.0121

Gender (X3) .4009

Predict the average number of days absent for a student whose Math standardized test scores=3.3,
language standardized test scores=3.5, and Gender=1. (2)