yw wnovae insite es wotber RiARAGetn eel meas aise pein ap eta oar End Autumn Semester Examination 2015 Subject No. HS40007 Econometric Analysis I! Fourth Year M.Sc. (Economics) Time: 3 hours Full Marks: 50 marks Answer Question No 1 and any six questions [ 8 + 7 X 6 marks) 1. You are regressing economic growth (captured by GOP per capita) upon health (captured by life expectancy at birth) using panel data, You feel that growth has a self-sustaining effect and, to capture this effect, you add lagged GDP per capita as an explanatory variable. Explain why your ‘model will be biased. Describe the Anderson: Hsiao method for removing this bias. (5+3] 2. Define a weakly stationary process. Distinguish between trend stationary and difference stationary processes. Explain why differencng will not ensure stationarity in process with a stochastic trend. [24342] 3. Suppose you are undertaking research on daily opening prices of a corporate firm from 2005 to 2015. We suspect that there is a structural break in the trend in opening prices caused by the global recession in 2007. How should we test for the aresence of unit roots in this case? (6) 4. Explain how the error term varies between a pooled model, fixed effects model and random effects model (6) 5, What is a Linear Probability Model? You are modelling probability of buying a car, assuming that it depends upon income of the household. Explain how the linear relationship between dependent and explanatory variables can create a problem wich respect to predictions in this model. [2+4) 6. Distinguish between odd-ratios and marginal effects in the context of a logit model. [6] 7. Explain the assumption of Independence of Irrelevant Alternatives (IiA) for 3 multinomial logit. Give an example when this assumption does not hold 1343)8. We want to find out whether rich people are more charitable and donate more. To test this hypothesis, we regress donations made to charities (as percentage of gross income] on taxable income, estimating the mode! with OLS. Our data source is the tax returns filed under the Income ‘Tax Act, which provides information on all the variables. What problem will occur from the use of data from income tax returns? How should the probability distribution function be adjusted to tackle this problem? [3+3) 9, What is a Tobit model? Give two examples when such models appropriate? [244]