You can answer each question in about two or three sentences.    Again, put some thought into your answer but this is not a major essay.

As you answer each question, please paste in the question number and question before your answer.

1.     1. Explain why logarithm transformations are our friends, while doing research in econometrics.

2.    2.  What is the dummy variable trap?

3.     3. What is the Chow test for structural change?

4.     4. Explain the Ramsey RESET test] and explain the intuition of this test as a test of neglected nonlinearity.

5.    5.  Explain why the adjusted R-squared is not a particularly useful diagnostic for evaluating the success of a regression specification and result?

6.    6.  Explain the Box-Cox procedure for evaluating the linear vs. the logarithmic specification of a regression equation.

7.     7. What is a slope dummy or interactive dummy variable?  How does it differ from an intercept dummy?

8.     8. What are the relative merits of the Chow test vs. dummy variables for testing structural change?

9.     9. What are the key econometric issues related to the estimation of VAR models?

10.  10. Explain the Breusch-Godfrey test for detecting autocorrelation or the the Cochrane-Orcutt iterative procedure for eliminating AR(1) autocorrelation

11.    11. Explain the benefits of the Impulse Response function obtained from a VAR model?  Explain how confidence intervals can be obtained from bootstrapping?

12.  12. What are the key problems of using VAR’s for obtaining IR and Variance decomposition results?


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