Principles of Econometrics;

1. Explain what is meant by the following terms:

(i) Unbiasedness

(ii) Efficiency

(iii) Linearity

(iv) Standard error of

(v) Normality and Parallel trends

(3 marks each)

2. (a) Consider the following cross-sectional regression model which has been estimated using n observations:

yi = + ei, where

Explain briefly the interpretation of the following expression:

where

Explain how this expression can be used to construct a test of the null hypothesis H0: ?2=?3=0.

(7 marks)

(b) For each of the following assumptions concerning the multiple regression model, describe briefly one method you could use to test the validity of the assumption.

(i) Normality

(ii) Linearity

(4 marks each)

3. (a) With reference to the multiple regression model:

explain what is meant by the following statement:

“The regression splits the variation in the dependent variable into an explained and an unexplained component”.

Explain how this result can be used to construct a test for the null hypothesis H0: ?2=?3=…=?k=0.

(8 marks)

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