SCHOOL OF ECONOMICS

ECON 2206 INTRODUCTORY ECONOMETRICS FINAL EXAMINATION SESSION 1, 2008

1. TIME ALLOWED - 2 Hours.

2. READING TIME = 10 Minutes 3. THIS EXAMATION PAPER HAS 9 PAGES 4. TOTAL NUMBER OF QUESTIONS - 6. 5. ANSWER ALL QUESTIONS. 6. ALL QUESTIONS ARE OF EQUAL VALUE 7. TOTAL MARKS AVAILABLE FOR THIS EXAMATION - 60. 8. THE MARKS AWARDED TO EACH PART OF A QUESTION ARE INDICATED. 9. CANDIDATES MAY BRING THEIR OWN CALCULATORS TO THE EXAM 10. STATISTICAL TABLES ARE PROVIDED AT THE END OF THE EXAM PAPER 11. ALL ANSWERS MUST BE WRITTEN IN PEN. PENCILS MAY BE USED ONLY FOR DRAWING, SKETCHING OR GRAPHICAL WORK. 12. THIS PAPER MAY BE RETAINED BY THE CANDIDATE

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ANSWER ALL SIX

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(iv) Do you think that this model captures the causal effect of nox on house prices? Explain. (2 Mar-ks)

NOTE: The F-test statistic is given by the formula:

F =

(SSR r - SSRur)/q SSRur/(n - k - 1)

(1 (R~r - R;)/q Il~r)/(n - k - 1)

where SSIl is the sum of squared residuals, q is the number ofrestrictions, and ur and r stand for unrestricted and restricted models, respectively.

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Question 5. (10 Marks in total).

To study the impact of the Australian government's 'Baby Bonus' policy on the fertility rate of Australian, the following model was estimated using annual data for the period 1928 to 2007: frt 124.09 + 0.114 Bonust - 35.88ww2t - 2.53t + 0.120t 2 (4.36) (0.040) (5.71) (0.39) (0.005) (5.1)

n

= 80, R 2 = 0.698

The variable fr is the fertility rate (number of children born to every 1000 women of child-bearing age), Bonus is the economic variable of interest which measures the real dollar value of the 'Baby Bonus' (which is a government payment to women for each child she gives birth to: the value of Bonus from $0 to $5000, with an average of $100 over the sample period), ww2 is a dummy variable equal to one during the years of the second world war. The model includes a quadratic time trend, with the