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SECTION A
Answer TWO questions from this section.
This section is worth 60 marks in total.
Question 1
A researcher investigates the relationship between log wage and commuting time for
Londoners:
= 10 + 11 + 12 + 13 + 14
2 + 15 + 1
= 20 + 21 + 22 + 23 + 24
2 + 25 + 2
Question1.wf1 contains data on a sample of 528 workers. is log real hourly wage,
average commuting time (minutes per day), is years of education, is
the years of working experience of the respondent, is a dummy for being a member
of a trade union, is a dummy for having any school-age children.
a) Discuss why it is important for the equations to be identified.
[5 marks]
b) Under what conditions are these two equations identified
[10 marks]
c) Demonstrate how to estimate this model based on the answer in part b), use the data
in the file Question1.wf1 for model estimation, report the results from EViews and
discuss your findings.
[15 marks]
Total 30 marks
MN-M038 (January/2024) Page 3
QUESTIONS CONTINUE OVERLEAF
Question 2
The file Question2.wf1 contains data for wage and unemployment for the US economy from
2000Q1 to 2022Q4.
a) Evaluate the issues related to regressing variables from the file against one another,
taking into account that the series in the file Question2.wf1 are unit root processes.
[5 marks]
b) Check for cointegration between the two variables in EViews using the Engle-Granger
approach, demonstrate the process, report your results, and provide comments.
[10 marks]
c) Evaluate the validity of the Phillips curve theory for the US economy using the file
Question2.wf1.
[15 marks]
Total 30 marks
MN-M038 (January/2024) Page 4
QUESTIONS CONTINUE OVERLEAF
Question 3
The file Question 3.wf1 contains the returns of Stock A.
a) Evaluate why the ARCH-GARCH methodology is useful in explaining the returns of
Stock A.
[5 marks]
b) Construct an ARCH (1) model and explain the intuition behind this model.
[5 marks]
c) Estimate the ARCH (1) model constructed in part b) in EViews and explain the intuition
of checking the ARCH (6) effects, comment on your results.
[10 marks]
d) Construct a GARCH (1,1) model and estimate it in EViews, explain the intuition behind
this model and discuss the main findings.
[10 marks]
Total 30 marks
MN-M038 (January/2024) Page 5
QUESTIONS CONTINUE OVERLEAF
Question 4
The file Question 4.wf1 contains data for alcohol tax, income and alcohol sales for 8 US
states for the years 1985 to 2000.
a) Analyse the characteristics of the data in the Question 4.wf1 file and critically evaluate
the advantages and limitations of using these types of data.
[5 marks]
b) Construct a model to study the determinants of alcohol sales and propose different
methods for investigating this relationship. Critically evaluate the methods you have
proposed.
[10 marks]
c) Estimate the model using the data in the Question4.wf1 file according to the methods
proposed in part b) and justify which one performs the best.
[15 marks]
Total 30 marks
End of Section A
MN-M038 (January/2024) Page 6
QUESTIONS CONTINUE OVERLEAF
SECTION B
There is in the only ONE question in this section,
answer ALL of its sub-questions.
The section is worth 40 marks in total.
Question 5
A researcher aims to investigate the determinants of land values in the US. The following
regression model is set up, and the OLS method is employed for estimation. Tables 5.1 and
5.2 show the regression results. Some of the values have been deleted. Use these results
to answer all the questions a) to d) below.
ln(
) = 1 + 2 ln( 1
) + 3 ln( 1
) + 4 ln( 2
) + 5 ln( 3
) +
Where
is the land price index, 1
is lot size (square feet), 2
is housing price index and
3
is distance to central business district (miles).
a) Interpret the main results from the regression in Table 5.1, commenting on the
economic meaning of the estimated parameters. Comment on the goodness of fit.
[5 marks]
b) Using the results from Table 5.1, evaluate whether last period land price significantly
influences the current period land price. Comment on the economic meaning.
[5 marks]
c) The researcher suspects that the regression suffers from first-order autocorrelation.
The Durbin-Watson statistics in Table 5.1 is used. Give some intuition about the
values in the Durbin-Watson critical values tables and propose a suitable
autocorrelation test. [15 marks]
d) The researcher suspects that the regression suffers from heteroskedasticity. The
heteroskedasticity test is conducted. Table 5.2 shows the auxiliary regression of a
heteroskedasticity test. Use the information provided to identify which test is
employed and analyse whether heteroskedasticity is present. Give some intuition
about how this test examines for heteroskedasticity.
[15 marks]
Total 40 marks
MN-M038 (January/2024) Page 7
Table 5.1
Table 5.2
End of Paper