Exercises Questions

17.1. Explain with a brief reason whether the following statements are true, false, or uncertain:

a. All econometric models are essentially dynamic.

b. The Koyck model will not make much sense if some of the distributed-lag coefficients are positive and some negative.

c. If the Koyck and adaptive expectations models are estimated by OLS, the estimators will be biased but consistent.

d. In the partial adjustment model, OLS estimators are biased in finite samples.

e. In the presence of a stochastic regressor(s) and an autocorrelated error term, the method of instrumental variables will produce unbiased as well as consistent estimates.

f. In the presence of a lagged regressand as a regressor, the Durbin-Watson d statistic to detect autocorrelation is practically useless.

g. The Durbin h test is valid in both large and small samples.

h. The Granger test is a test of precedence rather than a test of causality.

17.4. Assume that prices are formed according to the following adaptive expectations hypothesis:

where P* is the expected price and P the actual price.

64For applications of these models, see Arnold C. Harberger, ed., The Demand for Durable Goods, University of Chicago Press, Chicago, 1960.

Gujarati: Basic I III. Topics in Econometrics I 17. Dynamic Econometric I I © The McGraw-Hill

Econometrics, Fourth Models: Autoregressive Companies, 2004 Edition and Distributed-Lag

Models

704 PART THREE: TOPICS IN ECONOMETRICS

Complete the following table, assuming y = 0.5*:

Period

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