Term

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

Definition
Roughly, the slope of Y with respect to X for small X 


Term

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 tscores. 2. Theory, ttest, Rsquared, 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 tscores 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. durbinwatson d test, significantly less than 2 3. Impure: change form. Pure: GLS or NeweyWest 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


Term
A variable that explains all of the change in Y is called a... 

Definition


Term
Imperfect multicollinearity is a _______ __________ as well as a _________ ___ 

Definition
sample phenomenon; theoretical one 


Term
Pure Serial correlation is a violation of... 

Definition


Term
Impure serial correlation is caused by... 

Definition
omitted variable or incorrect functional form 


Term
Remedies for serial correlation 

Definition
GLS (CochraneOrcutt method) NeweyWest Standard Errors 


Term
Pure heteroskedasticity occurs when _________ ________ _ is violated. 

Definition


Term

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 tscore of a1 


Term
How do we do the White Test? 

Definition
(ei)^2 = a0 + ... all regular, squared, and crossproduct 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 durbinwatson d test 

Definition
1. model includes intercept term 2. et  pet1 + 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 + a2Yt1 + a3et1 + 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

Definition
Yt = B0 +B1Yt1 + ... + BpYtp + a1At1 + ... apAtp + et test At1,...,Atp Get F statistic and compare to F critical value (K*,NK1) K* = # of restrictions, N = obs., K = # explanatory variables.
If we reject, then we have evidence that A granger causes Y 


Term

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,xtk) depends only on k for all k 


Term
Test for nonstationarity 

Definition
1. gamma < 1 => stationary 2. gamma > 1 => nonstationary 3. gamma = 1 => nonstationary, unit root, random walk. 


Term
DickeyFuller Test for nonstationarity 

Definition
Yt = gammaYt1 + vt Yt  Yt1 = (gamma1)Yt1 + vt changeYt = BYt1 + vt, B = (gamma1) H0: B=0 (gamma=1,unit root) Ha: B<0 (gamma<1,stationary) Cannot use a ttest 


Term

Definition
ChangeYt = a0 + a1ChangeXt + et 


Term

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

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 

