THE UNIVERSITY OF NEW SOUTH WALES

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 QUESTIONS REMINDER: When performing statistical tests, always state the null and alternative hypotheses, the test statistic and it's distribution under the null hypothesis, the level of significance and the conclusion of the test.

Question 1. (10 Marks).
(i) What are the distinctive features of 'panel data' compared to 'cross-section' data? Explain. (2 marks).

(ii) In the model:

price

= /3 0 + /3 1area + /32bdrms + /33 area

x bdrms + u

what is the partial effect of bdrms on price? (2 marks).

(iii) What is the 'p-value' for a test statistic? SHAZAM reported the p-value for a test was 0.022; should I therefore reject the null hypothesis at the 1% level of significance? (2 marks)

(iv) Consider the following regression model explaining child birthweight (bwght):

bwght

= /3 0+ /3 1cigs + /3 2f amine + u

where cigs=average number of cigarettes the mother smoked per day during pregnancy and faminc=family income. In the sample of data I do not have a measure of family income. One option is to find a 'proxy variable' for family income. What are the desirable properties of a proxy variable? Suggest