UNIVERSITY OF MAURITIUS

FACULTY OF SOCIAL STUDIES & HUMANITIES

SECOND SEMESTER EXAMINATIONS

MAY / JUNE 2002

COURSE/YEAR M.SC IN APPLIED ECONOMICS – LEVEL II

PAPER TITLE QUANTITATIVE METHODS II

(Special Resit Paper)

DATE THURSDAY MODULE ECON5213

11 APRIL 2002 CODE

TIME 4.00 – 6.00 P.M DURATION 2 HOURS

( + 15 minutes
Reading Time )

INSTRUCTIONS TO CANDIDATES

Time allowed: 2 hours + 15 minutes Reading Time

Number of questions set: FIVE (5)

Number of questions to be attempted: THREE (3)

All questions carry equal marks.

 QUANTITATIVE METHODS II
[ECON5213]

Answer any THREE (3) questions.

1.(a) Distinguish between AR(1), MA(1) and ARMA(1,1) models.
[12 marks]

(b)(i) Construct a trivariate VAR to study the relationship between Consumption,

Income and Wealth, setting an arbitrary lag length.
[9 marks]

(ii) How is Akaike’s Information Criterion applied? How is it computed?

[4 marks]

2.(a) Specify an appropriate econometric model to study the relationship between

investment and profits realised by private firms.
[10 marks]

(b) An econometrician sets on to estimate the following model:

Ct ? ? ? ? ? 1 rt e ? u t

Where C t is real cash balances held by consumers, re is expected real rate of

interest and ut is a random error term.

Derive the reduced form of this model assuming that rt e is based on

(i) adaptive expectations formation
(ii) rational expectations formation

Also comment on the expected sign of rte , that is the coefficient ? 1 .

[15 marks]

3.(a) Compare and contrast between Engle and Granger Method and Hendry Method in
the formulation of an ECM.

Support your answer with an example.

[8 marks]

(b) The marketing manager of a firm intends to test empirically the model:

Qt ? ? 0 ? ? 1 Pte ? vt
(where Qt is the output of the firm’s rival, P te is the expected price of the firm’s
product and v t is an error term)

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 Using time series data over the period 1971-2001, he established the following
results:

^
Q t ? 4.53 - 0.4P t ? 0.9Q t -1
(5.2) (4.1) (9.6)

Calculate the values of ? 0 and ? 1 and interpret the relationship between Qt and
Pt e .
[8 marks]

(c) If in an empirical exercise the dependent variable is binary, what econometric

technique would you apply and why?
[9 marks]

4.(a) Describe an ARCH test and provide an application of it.

[5 marks]

(b) What is the relevant technique that you would apply to analyse share prices as
they are listed on the stock exchange? Explain the technique fully.
[8 marks]

(c) How do economists test for a long term relationship between two variables?
[12 marks]

5.(a) Clearly explain the importance of ‘within’ and ‘between’ effects in panel data
estimation. How are they different from ‘fixed’ and ‘random’ effects?
[8 marks]

(b) Discuss the rationale of the Almon Approach to distributed lag models.
[5 marks]

(c) A policy maker wants to model efficiency in the use of its inputs to produce a
given output level. His inputs comprise labour, capital and energy. Explain how
he may achieve this objective.

Further, he wishes to capture technological innovation in his framework, but does

not have the required technique to do so. In what way can you advise him?
[12 marks]

~ END OF QUESTION PAPER ~

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