# Shared Flashcard Set

## Details

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

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 estimates2. significant unexpected signs, poor fits3. 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 dropped3. 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 relationship3. Transform to different functional form
Term
 Multicollinearity Consequences, Detection, and Correction
Definition
 1. high standard errors and low t-scores2. high correlation or high VIF3. Drop redundant variables, increase N, or do nothing
Term
 Serial Correlation Consequences, Detection, and Correction
Definition
 1. OLS no longer BLUE, hyp testing is unreliable2. durbin-watson d test, significantly less than 23. Impure: change form. Pure: GLS or Newey-West SEs
Term
 Heteroskedasticity Consequences, Detection, and Correction
Definition
 1. OLS no longer BLUE, hyp testing is unreliable2. Park or White Tests3. 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 + uiCheck 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 term2. et - pet-1 + ut3. does not include a lagged dependent variable as an independent variable.
Term
 Properties of Distributed lag models
Definition
 1. Severe multicollinearity2. B0, B1, B2,... smooth declining3. 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 TestResiduals = a0 + a1Xt + a2Yt-1 + a3et-1 + utH0: a3 = 0, Ha: a3 != 0TS = 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 time2. the variance of xt is constant over time3. r(xt,xt-k) depends only on k for all k
Term
 Test for non-stationarity
Definition
 1. |gamma| < 1 => stationary2. |gamma| > 1 => non-stationary3. |gamma| = 1 => non-stationary, unit root, random walk.
Term
 Dickey-Fuller Test for non-stationarity
Definition
 Yt = gammaYt-1 + vtYt - Yt-1 = (gamma-1)Yt-1 + vtchangeYt = 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 + etbot Yt, Xt unit rootet = Yt - a0 - a1XtXt, 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 12. R^2 not an accurate measure of overall fitPseudo R^2 = Count R^2 = # of correct obs./#obs
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