Statistical Concepts Quiz 2

Which of the following is true of the correlated random effects approach (CRE)?

• The CRE approach considers that the unobserved effect is correlated with the average level of explanatory variables.

• The CRE approach assumes that the unobserved effect is uncorrelated with the observed explanatory variables.

• The CRE approach cannot be used if the regression model includes a time-constant explanatory variable.

• The CRE estimate equals the random effects estimate.

• individual with lower income have higher savings

• individuals with lower income have higher savings

• uneducated people have higher savings than those who are educated

• educated people have higher savings than those who are not educated

Which of the following is true?

• A functional form misspecification occurs only if a key variable is uncorrelated with the error term.

• A functional form misspecification does not lead to biasedness in the ordinary least squares estimators.

• A functional form misspecification can occur if the level of a variable is used when the logarithm is more appropriate.

• A functional form misspecification does not lead to inconsistency in the ordinary least squares estimators.

The Least Absolute Deviations (LAD) estimators in a linear model minimize the sum of squared residuals.

• True

• False

The model xt = a1xt – 1 + et, t =1,2,.... , where et is an i.i.d. sequence with zero mean and variance σe^2 represents a(n):

• moving average process of order two.

• autoregressive process of order two.

• moving average process of order one.

• autoregressive process of order one.

Which of the following is true?

• The simplest way to deal with homoskedasticity in the linear probability model is to continue to use OLS estimation.

• The WLS method fails if i is negative or zero for any observation.

• The probability p(x) depends on the error term.

• If we can estimate hi for each i, it means that we can proceed directly with WLS estimation.

If the p-value of an F statistic 2.63 is 0.034, then we can say that the problem of interest is significant at the 5% level.

• True

• False

Suppose that, in a fixed effects analysis, controlling for the policy intervention in the current time period, the next period’s policy assignment predicts the outcome in the current period. This means that the research design is valid.

• True

• False

The population R-squared is affected when heteroskedasticity is present in Var(u|x1, ..., xk).

• True

• False

Durbin’s alternative test is valid even if the explanatory variables are strictly exogenous.

• True

• False