Shared Flashcard Set

Details

Econometrics Exam 2
Chapters 6-10,12-14,16
37
Economics
Undergraduate 3
04/16/2012

Additional Economics Flashcards

 


 

Cards

Term
Meaning of Double-Log B1
Definition
The elasticity of Y with respect to X
Term
Meaning of SemiLog (lnX) B1
Definition
The change in Y (in units) related to a 1 percent increase in X
Term
Meaning of SemiLog (lnY) B1
Definition
The percent change in Y (in units) related to a 1 unit increase in X
Term
Meaning of Polynomial B1
Definition
Roughly, the slope of Y with respect to X for small X
Term
Meaning of Inverse B1
Definition
Roughly, the inverse of the slope of Y with respect to X for small X
Term
Omitted Variable Consequences, Detection, and Correction
Definition
1. Bias in the coefficient estimates
2. significant unexpected signs, poor fits
3. Include the omitted variable or a proxy
Term
Irrelevant Variable Consequences, Detection, and Correction
Definition
1. Less precision, higher standard errors, lower t-scores.
2. Theory, t-test, R-squared, impact if dropped
3. Remove the variable
Term
Incorrect Functional Form Consequences, Detection, and Correction
Definition
1. Biased estimates, poor fit, difficult interpretation.
2. Examine theory, think about the relationship
3. Transform to different functional form
Term
Multicollinearity Consequences, Detection, and Correction
Definition
1. high standard errors and low t-scores
2. high correlation or high VIF
3. Drop redundant variables, increase N, or do nothing
Term
Serial Correlation Consequences, Detection, and Correction
Definition
1. OLS no longer BLUE, hyp testing is unreliable
2. durbin-watson d test, significantly less than 2
3. Impure: change form. Pure: GLS or Newey-West SEs
Term
Heteroskedasticity Consequences, Detection, and Correction
Definition
1. OLS no longer BLUE, hyp testing is unreliable
2. Park or White Tests
3. Impure: fix form. Pure: HC SEs or reformulate variables.
Term
Perfect Multicollinearity violates...
Definition
Classical Assumption VI.
Term
A variable that explains all of the change in Y is called a...
Definition
dominant variable
Term
Imperfect multicollinearity is a _______ __________ as well as a _________ ___
Definition
sample phenomenon; theoretical one
Term
Pure Serial correlation is a violation of...
Definition
Classical Assumption IV
Term
Impure serial correlation is caused by...
Definition
omitted variable or incorrect functional form
Term
Remedies for serial correlation
Definition
GLS (Cochrane-Orcutt method)
Newey-West Standard Errors
Term
Pure heteroskedasticity occurs when _________ ________ _ is violated.
Definition
Classical Assumption V
Term
proportionality factor Z
Definition
the variance of the error term changes proportionally to the square of this Z
Term
Impure heteroskedasticity
Definition
caused by specification error
Term
How do we do the Park test?
Definition
ln(ei^2) = a0 + a1lnZi + ui
Check significance of the t-score of a1
Term
How do we do the White Test?
Definition
(ei)^2 = a0 + ... all regular, squared, and cross-product variables.
TS = NR^2 with df = # of slope coefficients
#X = 1,2,3,4,5 #df = 2,5,9,14,20 respectively
Term
Assumptions for using durbin-watson d test
Definition
1. model includes intercept term
2. et - pet-1 + ut
3. does not include a lagged dependent variable as an independent variable.
Term
Properties of Distributed lag models
Definition
1. Severe multicollinearity
2. B0, B1, B2,... smooth declining
3. lower df, oh noooooo!!!
Term
Dynamic models suffer from...
Definition
serial correlation, which causes bias
Term
Testing for serial correlation in a Dynamic Model
Definition
Lagrange Multiplier Test
Residuals = a0 + a1Xt + a2Yt-1 + a3et-1 + ut
H0: a3 = 0, Ha: a3 != 0
TS = NR^2 > chi df = # restrictions in H0
Term
Correcting for Serial Correlation in Dynamic Models
Definition
Improve specification, Use instrumental Variables, modified GLS
Term
Granger Causiality
Definition

Yt = B0 +B1Yt-1 + ... + BpYt-p + a1At-1 + ... apAt-p + et test At-1,...,At-p Get F statistic and compare to F critical value (K*,N-K-1) K* = # of restrictions, N = obs., K = # explanatory variables.

If we reject, then we have evidence that A granger causes Y

Term
Spurious Correlation
Definition
When two variables have no causal relationship but it may be wrongly inferred that they do.
Term
A variable is stationary if...
Definition
1. the mean of xt is constant over time
2. the variance of xt is constant over time
3. r(xt,xt-k) depends only on k for all k
Term
Test for non-stationarity
Definition
1. |gamma| < 1 => stationary
2. |gamma| > 1 => non-stationary
3. |gamma| = 1 => non-stationary, unit root, random walk.
Term
Dickey-Fuller Test for non-stationarity
Definition
Yt = gammaYt-1 + vt
Yt - Yt-1 = (gamma-1)Yt-1 + vt
changeYt = BYt-1 + vt, B = (gamma-1)
H0: B=0 (gamma=1,unit root)
Ha: B<0 (gamma<1,stationary)
Cannot use a t-test
Term
First Differences
Definition
ChangeYt = a0 + a1ChangeXt + et
Term
Test for cointegration
Definition
Yt = a0 + a1Xt + et
bot Yt, Xt unit root
et = Yt - a0 - a1Xt
Xt, Yt are cointegrated if their linear combination is stationary.
Term
Linear Probability Model
Definition
dummy variable as dependent variable
Term
Problems with linear probability model
Definition
1. y not bounded between 0 and 1
2. R^2 not an accurate measure of overall fit
Pseudo R^2 = Count R^2 = # of correct obs./#obs
Supporting users have an ad free experience!