Calculate Goodness of Fit - Financial Econometrics - Exam, Exams of Econometrics and Mathematical Economics

Download Calculate Goodness of Fit - Financial Econometrics - Exam and more Exams Econometrics and Mathematical Economics in PDF only on Docsity! 1 Ollscoil na hÉireann, Gaillimh GX_____ National University of Ireland, Galway Repeat Examinations 2008/2009 Exam Code(s) 1MIF1 Exam(s) M.Econ.Sc. (International Finance) Module Code(s) EC564 Module(s) Financial Econometrics I Paper No. Repeat Paper 1 External Examiner(s) Professor Cillian Ryan Internal Examiner(s) Professor Eamon O’Shea Mr. Stephen O’Neill Instructions: Answer 4 questions only. Each question is worth 100 marks. Please indicate clearly on the front of the answer book which questions you have answered. If you have answered more than the required numbered of questions please indicate which questions you would like corrected – otherwise the first four answered questions in your answer book will be corrected. Duration 3 hours No. of Pages 4 pages including this cover Department(s) Economics Course Co-ordinator(s) S. O’Neill Requirements: MCQ Handout Statistical Tables Graph Paper Log Graph Paper Other Material 2 A1. Consider the following econometric model Yt = β1 + β2X2t + β3X3t + β4X4t + µt where Yt is the dependent variable, X2t, X3t and X4t are observations of independent variables, βi are unknown parameters and µt is a random error term. (a) Describe in general terms how you would estimate the above model. (25 marks) (b) Describe how you would calculate the goodness of fit of a regression equation. (25 marks) (c) The calculated R2 for the above model is 0.68. Explain the meaning of this finding. (15 marks) (d) Explain how you would test a restriction on the above econometric model using an F test. (35 marks) A2. Autocorrelation (a) What is autocorrelation? Which assumption of the classical linear regression model is violated by autocorrelation? (25 marks) (b) What are the possible causes of autocorrelation? (25 marks) (c) Describe how you would test for autocorrelation. (25 marks) (d) Explain how the problems associated with autocorrelation can be resolved? (25 marks) A3. Unit Roots (a) Describe a unit root process. (25 marks) (b) Explain how the autocorrelations of a time series are useful in informally assessing whether there is a unit root. (25 marks) (c) The Dickey-Fuller test is a commonly applied procedure for testing economic time series for unit roots and stationarity. Briefly outline the Dickey-Fuller test procedure. (25 marks) (d) Explain why the Dickey-Fuller test is sometimes augmented with lags of the dependent variable. How would you decide on the appropriate number of lags? (25 marks)