1.

Name the

steps of the construction of econometric model (2 points)

Economic theory
Economic model
Econometrics model
Data set
Estimation
Verification
Aplication

2. Structural parameters of econometric model (EM) express: (2 points)

β, γ …structural parameters of endogenous and exogenous variables Komentář [T1]: Neptají se spíš na
tohle?!?

a) Direction of their variables

b) Intensity of their variables

3. Explain the difference between partial and complex form of EM. (2 points)

Partial form of EM is more specific – it describes the part of production cycle whether complex form
is focused on the all economy

4. EM is in a form: (6 points)

y 1t = β 13 y 3t + γ 11 x 1t + γ 12 x 2t + γ 13 x 3t + u 1t

y 2t = β 21 y 1t + γ 21 x 1t + γ 24 x 4t + u 2t

y 3t = β 31 y 1t + β 32 y 2t + γ 35 x 5(t-1) + u 3t

a) Which method can you apply for the estimation of structural parameters?
Method: TSLSM
Reason: Equations are over identified and OLSM could be used only if they were exactly identified

b) Matrices Β and Γ are:

BETA 3x3

GAMMA 3x5
5. Calculate point income elasticity, if a function is in a form y t = -4.5 + 0.8x p , where y i is demand for
i-th product , x p income in thousands CZK, which increases from level of 12 thousands to level of 13
thousands CZK. (6 points)

x 1 = 12 (we consider it in thousands)

x 2 = 13
y 1 = -4.5 + 0.8 * 12 = 5.1
y 2 = -4.5 + 0.8 * 13 = 5.9

Ep= ( 5.9 – 5.1 / 5.1 ) / (13-12/12) = 1.88%

This demand function belongs to a group of: Consumption, Engel‘s?

Which products can be described by this function?: Luxury goods? But i really don’t know Komentář [T2]: When the elasticity is
above 1, its for luxury products

6. A principle of two-stage least square method is: (10 points)

Replacing Y2 by Y2 theoretical (Y2 theoretical is not correlated with the residuals then)
Estimation of parameters
We us it when we can’t use OLSM when there are over identified equations

Define the content of required matrices and vectors for the estimation of structural parameters with
help of this method.

We get Matrix K and then estimate the parameters by:

K-1 Ŷ T y
 Yˆ2T Yˆ2 Y2T X *  2 1

 T  X* T

 X * Y2 X *T X * 

7. A demand function of an aggregate consumption is in a form: (10 points)

y 1t = a 11 + a 12 x 2t + a 13 x 3(t-1) + a 14 y 1(t-1)

y 1t ........ consumption (C)

x 2t ........ gross domestic product (GDP)

x 3t ........ investment (I n )

The data collections for definition of vector structural parameters a i are following:

Year y1 x2 x3
1989 500 1200 615
1990 510 1400 820
 1991 490 1300 630
. . . .
. . . .
. . . .
1995 600 1500 500
1996 620 1600 700

Write a formula for estimation of a i and from this data write the concent of matrix and vector for the
calculation. However, do not calculate it.

Is it OLS?
Y 510 X 1 1400 615 500
490 1 1300 820 510
,,, ,,, ,, 630 490
600 1 1500 ,,, ,,,
620 1 1600 500 600

a i = (XT*X)-1*XT*y

8. In the function of aggregate consumption, a multicollinearity between variables GDP and I n was
detected. (6 points)
Year In GDP C
1 2 4 12
2 1 2 5
3 3 6 13
4 2 9 15

Write possible solitions of this situation:

a).Including 1st differences of In and GDP
b) Including Dummy variable
c) Dynamization of the model (by adding more observations)

9. If it is possible, according to the demand’s functions‘ running and their elasticities, decide which
function is the best for the modelling of a demand for the luxury fish products, in relation to the
income. (9 points)

Q D = -2.4 + 1.3P (1)

Q D = 3.3 + 1.2P (2)

Q D ..... amount demanded

P ....... income in 10 thousands CZK

On the basis of functions‘ running and their elasticities, more suitable is function:
(1)(1)
(2)(1)
(1)
Mark suitable.
Explain your reasons.
There’s a negative intercept which means that people will buy this luxury product from certain
income ( not from 0) which is typical for luxury product function. Then there is no saturation which is
also typical for this type of function.
Elasticity of luxury goods function is more than 1

10. A production function is in a form y = 2.4x 1 0.5 x 2 0.6 . (10 points)

Derive an isocline function with a marginal rate of subtitution dx 2 /dx 1 = -2

Page 116 -119

dx2 / dx2 = - 2
MMZ = -k
k=2
b1 = 0.5
b2 = 0.6

Formula: x2 = b 2 /b 1 * k * x 1 = 2.4 x 1

11. Write a reasons of high(1) – low(1) supply elasticity of agricultural products. (4 points)
a)Dependent on the climatic conditions
b)Seasonal goods
c)Relatively necessary good and stable demand
d) Delay of supply of those products
(1)
mark suitable

12. Index of climatic conditions is explanatory variable in: (3 points)

a) macroeconomic production function of national economy
b) agricultural macroeconomic production function
c) macroeconomic production function of construction
d) meteorological function of national economy
e) complex econometric models?
Mark suitable.

13. A unit cost function is in a form: (4 points)

Y jNc = ATC = 32.0 -0.2y + 0.0008y2 – 228/y

Derive a total cost function.

TC/y = ATC => ATC*y= TC = > 32.0y -0.2 y2 + 0.0008y3 – 228

14. 2nd degree degressivity is characteristic for: (2 points)

a) production function b) cost function

Mark suitable and explain content

15. A supply function, expressed by a marginal cost function, is defined from a short time viewpoint.
(3 points)
a) above level of min. Marginal costs
b) above level of total costs
c) under level of variable costs
d) above level of min. unitary variable costs
e) above level of min. unitary total cots
Mark suitable.

16. The main difference between a production function in the complex macroeconomic and
microeconomic function is that: (3 points)
.....................................................................................................................................
.....................................................................................................................................
.....................................................................................................................................

17. Autocorrelation of residuals u t for t= (1....n) can be evaluated by

................... test. (3 points)
Durbin-watson

Breusch-Godfrey test

18. Prognosis character of econometric model can be evaluated mainly on the basis of: (4 points)
a) Economic verification
b) Multicollinearity
c) Index of Determination
d) Autocorrelation of residuals

19. Ex post prognosis of two endogenous variables gave following results: (10 points)

Year Real values Forecasted values Real values Forecasted values

y1 y1 est y2 y2 est

1 1000 1100 100 80

2 1100 1300 105 75
3 1300 1000 90 140

On the basis of relative deviation decide which variable will be forecasted in the positive prognostic
horizon with higher reliability.
a) y1 b) y2
Mark suitable
Průměrná absolutní odchylka

∑ |u it |
D i = ––––––
n

Průměrná relativní odchylka

Di
Pi = –––
yi

600 100
D 1 = –––––– = 200 D 2 = –––––– = 33,3
3 3

200 33,3
P 1 = –––––– = 0,1765 P 1 = –––––– = 0,3390
1133,3 98,3

20. Prognosis can be divided according to the time horizon to: (4 points)

Prognostic horizon
a)............................short term ............................. 1 – 3 years
b)............................medium .............................4 - 7
c)............................long term .............................8 and more years
d)............................ .............................
 Econometrics

Version 2

1) Name steps of the construction of econometric model

1. Economic Model – (to choose proper economic model, define variables)

2. Econometric Model – (Economic model + error term)
3. Data Set – (collect data)
4. Estimation of Model parameters – (based on data collected by OLS)
5. Verification of fitted econometric model – (to determine whether the results are consistent with economic theory and statistics)
6. Application: 1) Structural analysis (ex-post analusis; 2) Simulation; 3) Forecasting (ex-ante analysis)

2) Explain the DW test:

DW test is a test statistic used to detect the presence of autocorrelation in the residuals from a regression analysis. A test that the
residuals from a linear regression or multiple regression are independent. Where H 0 : ρ=0 A: ρ>o or ρ<0; The test statistic is

. d becomes smaller as the serial correlations increase. Upper and lower critical values, d U and d L have
been tabulated for different values of k (the number of explanatory variables) and n. . If ρ=0 then d=2;
. If d<d L reject H 0 : ρ=0, If d>d U don‘t reject H 0 : ρ=0
If d L <d<d U test is inconclusive. d L and d U we‘ve to find from the table. If ρ=0 – no autocorrelation, ρ>0 – positive
autocorrelation, ρ<0 – negative autocorrelation.

3) Explain the difference between structural and reduce form of EC (2)

STRUCTURAL form ; REDUCED form where

In STRUCTURAL form it is possible to have dependent variables in both side of equation. We transform it into REDUCED form –
It means that on the right hand side there are only exogenous variables. Structural – Reduced –

4) EM is in a form: (6)

a) Which Method can apply for the estimation of structural parameters?

Method: ____Two Stage Least Square Method____________________
Reason: ____all equations are over identified____________________

b) Matrices B and Γ of this model are:

B= Γ=

5) Elasticity Y = -4,5 + 0,4x

x…. income
Y… demand

When raises from 11000 CZK to 13000 CZK. Count elasticity (income?)
 a) This demand function is suitable for which kind of product? Necessary goods
b) Which kind of demand function is it? Linerized 1TQ

6) What is principle of TLSM

TSLSM is the extension of the OLS method. It is used when the dependent variable’s error terms are correlated with the
independent variables. Additionally, TSLSM analysis is useful when there are feedback loops in the model. This method is used for
exactly or over identified equations.
The principle is to replace matrix y 2 by Ý in the regression on all predetermied variables

Name content of necessary matrices and vectors

X – matrix of all exogenous variables in the whole model [TXK]

X * – matrix of all exogenous variables in the choosen equation [TXK * ]
Y 1 – vector of endogenous variable on the LEFT hand-side in the choosen equation [TX1]
Y 2 – matrix of other endogenous variables included in the equation on the RIGHT hand side [TXg Δ ]

7) A demand function of an aggregate consumption is in a form (10)

y 1t …………….. consumption (C)

x 2t …………….. gross domestic product (GDP)
x 3t …………….. investments (I n )

The data collections for definition of vector structural parameters a i are following:
Year y1 x2 x3
1989 500 1200 615
1990 510 1400 820
1991 490 1300 630
. . . .
. . . .
. . . .
1995 600 1500 500
1996 620 1600 700

Write a formula for estimation of a i and from this data write the content of matrix and vector for the
calculation. However, do not calculate it.

X Y
x1 x2 x 3(t-1) y 1(t-1) y1 x1 x2 x3 y 1(t-1) y1
1 1200 615 500 500 1 1400 615 500 510
1 1400 820 510 510 1 1300 820 510 490
1 1300 630 490 490 1 . 630 490 .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . 1500 . . 600
1 1500 500 600 600 1 1600 500 600 620
1 1600 700 620 620
8) In the function of aggregate consumption, a multicolinearity between (6)
Variables GDP and I n detected.

Year In GDP c
1. 2 4 12
2. 1 2 5
3. 3 6 13
4. 2 9 15

Write possible solutions of this situation:

a) using lagged form of GDP by one year

b) ignoring it if it is not very high.

c) including dummy vector

9) If it is possible, according to the demand functions’ running and

their elasticities, decide which function is the best for the modeling of a
demand for the luxury fish products, in relation to the income
Q D = -2.4+1.3P (1)
Q D = 3.3+1.2P (2)
Q D …. Amount demanded
P ……. Income in 10 thousands CZK

On the basis of functions’ running and their elasticities, more suitable is function:
(1) 1)
(2) 1)
1)
Mark suitable.
Explain your reasons.

For luxury products elasticity is more then 1. That’s why (1) is suitable

10) A production function is in a form y=2.4x 1 0.5x 2 0.6.

Derive an isoclines function with a marginal rate of substitution

11) Write reasons of high1) – low1) supply elasticity of agricultural products (4)

a) ……climate condition……………………………

b) …………………………………………………....

c) ……………………………………………………

d) ……………………………………………………
1)
Mark suitable
 12) Describe the steps of Durbin-Watson test.

Assuming a first order autoregressive process

Define hypothesis H 0 : ρ=0 A: ρ>0 or ρ<0, then Test statistic

Choose significance level-α, table gives the critical values d L and d U corresponding to n (sample size) and k (number of
regressors) If d<d L reject H 0 : ρ=0, If d >d U do not reject H 0 : ρ=0, If d L <d<d U test is inconclusive.
d=2(1-ρ)

13) A unit cost function is in a form:

Derive a total cost function.

TC=ATC*y

14) 2nd degree degressivity is characteristic for: (2)

a) production function b) cost function
Mark suitable and explain its content.

15) A supply function, expressed by a marginal cost function, is defined (3)

from a short time viewpoint
a) above level of min. marginal costs
b) above level of total costs
c) under level of variable costs
d) above level of min. unitary variable costs
e) above level of min. unitary total costs
Mark suitable.

16) Define the term – heteroscedasticity. (3)

Recall that OLS makes the assumption that Var(u t )=σ2 <∞. That is, the variance of the error term is constant
(Homoscedasticity). If the error terms don’t have constant variance, they are said to be heteroscedastic.

17) Describe the procedure of testing the parameter significance. (4)

1st step: State the H 0 : (there is no relationship between variables) and A: H 0 is not true
Then

18) (6)
 19) We have ex-post prognosis (6)

Y1 = (1000, 1100, 1300)

Y1 (theoretical with hat) = (1000, 1300, 1100)

Y2 = (100, 90, 110)

Y2 (Theoretical) = (80, 70, 100)

Which is more suitable for prognosis?

20) Explain the ex-ante and ex-post prognosis

Ex-post prognosis is a forecast that uses information beyond the time at which the actual forecast is prepared, and ex-ante
prognosis is a forecast that uses information available by the time of the actual forecast only.
 Econometrics

Version 3

1. Name assumptions of linear regression model. (2)

1. Mean value of random error is 0. E(u t )=0

2. Homoscedasticity Var(u t )=σ2 <∞
3. No autocorrelation of residuals Cov(ui,uj)=0 for i≠j
4. Exogeneity Cov(X,u t )=0 > E[u i |x 1t , . .,x ut ]=0 all independent variables (x) are exogenous
5. Normal distribution of u t u i nid(0, σ2) i=1,2,...

2. (2)

3. In ECM we have (3)

variables: a) Endogenous variables - y
b) exogenous variables - x
c) lagged variables(endogenous – y t-1 , exogenous – x t-1 )
d) error term - μ
parameters: a) Structural – β for y, γ for x
b) Stochastic – variance, mean

4. Econometric model (EM) is in form (_)

y1t = β12 γ2t + β13 γ3t + γ11 x1t + γ12 y1(t−1) + γ13 x3t + µ1t
y2t = β23 γ3t + γ21 x1t + γ24 x4t + γ25 x5t + µ2t
y3t = y1t + y2t

Derive for this model matrix B and Γ.

y 1t y 2t y 3t x 1t y 1(t-1) x 3t x 4t x 5t
1 -β 12 -β 13 -γ 11 -γ 12 -γ 13 0 0
Β= 0 1 -β 23 Γ= -γ 21 0 0 -γ 24 -γ 25
-1 -1 1 0 0 0 0 0

5. Write the 1st equation of model from question 4 in reduced form. (4)

𝑦𝑡 = 𝑀𝑥𝑡 + 𝑣𝑡 𝑀 = −𝛽 −1 ∙ 𝛾 𝑣𝑡 = 𝛽 −1 ∙ 𝜇𝑡

6. Dynamic EM is characterized by: (3)

a) Time vector
b) Lagged variable
c) First differences

7. Define matrixes of 1st equation from 4 ex. to use in TSLSM

X* X Y1 Y2
↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑
x 1t y 1(t-1) x 3t x 1t y 1(t-1) x 3t x 4t x 5t y 1t y 2t y 3t
↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓
8. Calculate vector of stochastic variable of reduced form of model (7)
if vector of stochastic variable of structural form is:
2 1 0 −0.2 1 −0.1 0.2
𝜇𝑡= �3� and matrix 𝐵 = 0 1 0 and 𝐵−1 = 0 1 0
2 0 0.5 1 0 −0.5 1

𝑉𝑡 = 𝛽 −1 ∙ 𝜇𝑡

9. Demand function is in a form: (5)

y t =2.5x 1 -0.1x 2 1.3x 3 3.2

y 1t … demand of production in kg/…

x 1t … price of product i in CZK/kg
x 2t … price of product j in CZK/kg
x 3t … income in 1000/month

Calculate direct price elasticity. If price x 1 =30 CZK/kg x 2 =20 CZK/kg y=150 kg and result interpret

10. Demand of cheeses is expressed by model . (7)

y i = 10.5 - 0.1c i + 0.01c j + 1.5In
Yi…………….demand of cheeses
Ci……………. Price of cheeses
Cj……………. Price of salame
In……………. income
Compute income elasticity for income 12 and corresponding consumption 9 units and for income 20, when consumption
was on level 10 units.
Is the model consistent with consumer behavior?
a) yes b) no c) is not possible determine
Mark suitable answer and explain it:
a) …….
b) ……….
c) …..
𝑑𝑦 𝐼𝑛 12
𝐸𝐼𝑛 = ∙ = 1.5 =2
𝑑𝐼𝑛 𝑦 9
𝑑𝑦 𝐼𝑛 20
𝐸𝐼𝑛 = ∙ = 1.5 =3
𝑑𝐼𝑛 𝑦 10
11. 1st TQ is in form y' = 0.4 + 0.5x' (10)
Derive its common form

Say its meaning (I don’t remember exactly)

12. Supply function is in form (6)

Q st = 1.2P (t-1) 0.65
P (t-1) … price in time t-1
Q st … supply quantity in time t
Proof that the exponent of the function stands for the elasticity.
𝑑𝑄 𝑃 0.65−1 𝑃 0.65 −1 𝑃
𝐸𝐼𝑛 = ∙ = 1.2 ∙ 0.65 ∙ 𝑃𝑡−1 ∙ 0.65 = 1.2 ∙ 0.65 ∙ 𝑃𝑡−1 ∙ 𝑃𝑡−1 ∙ 1.2 𝑡−1
𝑃0.65
= 0.65
𝑑𝑃 𝑄 1.2𝑃𝑡−1 𝑡−1

13. Production function is in form (7)

y= 16x2-4x3
Calculate the maximum of AP and MP.
What do they inform about (from an economical point of view)?

𝑦 16𝑥 2 −4𝑥 3
𝐴𝑃 = = = 16𝑥 − 4𝑥 2 AP=MP
𝑥 𝑥
𝜕𝑦 𝑑𝐴𝑃 𝑑𝑀𝑃
𝑀𝑃 = = 32𝑥 − 12𝑥 2 =0 =0
𝜕𝑥 𝑑𝑥 𝑑𝑥

16𝑥 − 4𝑥 2 = 0 32𝑥 − 12𝑥 2 = 0

𝑥1 = 0 𝑥2 = 4

14. Find optimal combination of products, if you know that: (5)

Isofactor function is y 2 =60/y 1 and prices of factors are P y1 =60 CZK/piece and P y2 =65 CZK/piece.
𝑑𝑦 60 60
𝑀𝑃𝑅𝑆 = 𝑑𝑦2 = − 𝑦12 = 65 𝑦1 = √65 𝑦2 =
1 𝑦12 √65

𝑃𝑦 60
𝑀𝑃𝑅𝑆 = 𝑃𝑦1 = −
2 65
15. Derive cost functions of total cost, if the price of factor is P x1 =1 CZK, (6)
Production function is in form y = 24 +6x 1 and cost on fixed factors x 2 till x n are 400 CZK.

𝑦 − 24
𝑥1 = + 400
6

𝑥12
16. Derive from production functions 𝑦1 = 7 + 10𝑥1 𝑎𝑛𝑑 𝑦2 = 2 𝑥 (6)
1 +4.5
isofactor function and for the amount of factor x=200kg
𝑦 −7 2
�200− 1 �
10
𝑦1 = 7 + 10𝑥1 𝑦2 = 2 𝑦 −7
�200− 1 �+4.5
10
𝑦1 −7
𝑥1 =
10

17. Explain the use of differential coefficient of elasticity. (2)

An intensity of explanatory variables influence on endogenous variables can be evaluated according to a relative
expression on base of elasticity coefficients. A relative expression enables to compare the intensity of influence of
various variables on the explained variables regardless a choice of units in which particular variables are expressed.
An use of elasticity coefficients consist especially in a short-time prediction of demand changes on base of presupposed
and forecasted changes of examined economic factors. \for a marketing decision in a longer time horizon from this point
of view a differential elasticity coefficient seems to be the most advantageous.

18. A supply function, expressed by a marginal cost function, is defined from a short time viewpoint
a) above level of min. marginal costs
b) above level of total costs
c) under level of variable costs
d) above level of min. unitary variable costs
e) above level of min. unitary total costs
Mark suitable.

Draw the graph

19. Explain the term ex-post prognosis (3)

20. Prognosis.
function y=…
Trend function x=…
Calculate some prognosis