Instructions:

1. Print this exam, and use this as the answer sheet. I WILL NOT ACCEPT ANSWERS
WRITTEN IN PAD PAPER or in any other sheet.
2. Scan/Take a picture of your completed exam and send it to
daniel.hofilena@dlsu.edu.ph
danielhofilena@gmail.com
Before 5pm of August 23 [ fRIDAY ] . Late submissions will not be accepted.
3. Pass your original answer sheet [ only 1 answer sheet per group ] to the economics department
by Monday, August 19. Remember to pass the same answer sheet that you submitted online.
Ignoring this instruction WILL RENDER YOUR EXAM INVALID.
4. DO NOT INCLUDE THE APPENDIX and The FIRST PAGE when you pass your answer
sheet to me or to the economics department.
5. Please report to me if you have a groupmate who did not contribute to your quiz. I will give
your group plus points for doing so, but the person who did not contribute will be given a
different exam.

Group members in alphabetical order

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The eXaM Fr0M HELL

1. Apparently, Satan got mad at you for talking back. He sent you to the dungeons of hell,
here you met two brothers Azazel Caym Focalor (A.C.F) & Philatanus Astaroth Caym
Focalor (P.A.C.F). They told you that they will show you the path to the Forgotten Keys as
long as you answer their questions correctly.
a. What is the definition of the P.A.C.F? (2 points)
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b. What is the definition of the A.C.F.? (2 points)
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c. Why do you think the P.A.C.F is used to detect the AR process? (3 points)
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d. Why do you think the A.C.F. is used to detect the MA process? (3 points)
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2. You arrived at the Forgotten Keys, well, apparently there are a lot of keys, namely, Y, C, K,
& L, but there are only 2 slots. In order to get past the gate of the wailing students, you
must combine the keys and find the 2 reduced form keys.
You are then given a set of linear relationships:

a. Find the Reduced Form Equation of Y ( 3 points ) [ show your solutions on a scratch
paper]
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b. Find the Reduced Form Equation of C (3 points ) [ show your solutions on a scratch
paper]
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c. What are the methods utilized using Limited Information(single equation approach) ?
Explain the strengths and weaknesses of each. ( 3 points each )
c.1. Method 1 : ___________________
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c.2 Method 2: _____________________
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c.3 Method 3: ______________________
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3. After opening the gate of the wailing students, you encountered Darth Pikachu who said
"If you seek Ayou- and you will find the path of light that will lead you outside the
dungeons and into the wastelands of hell." You managed to find Ayou, who agreed to cross
you over the river N'aix given that you answer his questions:
He gave you 4 sets of different equations

a. Using the order condition, construct a table and check whether each equation is
identified, under-identified, or over-identified. ( 7 points ) [ Construct the table here ]

b. Use the rank condition

b.1 Is there a solution to the system? YES / NO (encircle one )
Why/ Why not? ( 4 points )
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b.2 Show your solution in computing the determinants ( 3 points )
Determinant of matrix formed from equation 1: _________
Computation:

Determinant of matrix formed from equation 2:__________

Computation:

Determinant of matrix formed from equation 3:___________

Computation:

Determinant of matrix formed from equation 4: __________

Computation:

c. What is the problem if the equation is under-identified? (3 points )

_________________________________________________________________________________________________________
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d. What is the problem if the equation is over-identified? ( 3 points )
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4. After crossing the river Ayou gave you a map of the 'path of death'. He said that he drew
it the last time he was on his way to the wastelands of hell.
You are now on the final verge of escaping the dungeons of hell, you meet another demon
name Ipyewseekayewtwoo. He told you that if you journey into to the path of death, your
path will be non-stationary.
a. What is a stationary stochastic process? Define and give its mathematical conditions (3
points )
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b. Will you be able to rely on the map that Ayou gave you? Why or Why not? ( 2 points )
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5. Congratulations, you are now officially lost. As you wander in the dark forests of the path
of death, you decide to ponder on why you did not manage to find your way. You
remembered these problems your boss gave you when you were still a financial analyst.
a. Suppose that your series are stock returns of the PSEi, is your data stationary? Give
theoretical underpinnings for your conclusion. (3 points )
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b. Suppose that your answer in letter (b) is that the series is non-stationary, what remedies
can you propose? and how will this solution affect your inferences about the data series? (2
points)
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Congratulations! You managed to get out of the dungeons! now,

666. WELCOME TO HELL
Suppose you are given the variables: unemployment (unemp), wage rate (wggr), the
consumer price index (cpi), and the percent changes of the CPI [inflation] (infl).
You decided to find the determinants of unemployment rate.
a. Give a theoretical relationship of wggr, cpi, and infl on employment. [ you can invoke an
economic theory ] [ THIS IS A BONUS OPTIONAL QUESTION. 5 points ]
Nature of the relationship of wggr to unemp : Positive/ Negative
Why? _______________________________________________________________
Nature of the relationship of wggr cpi to unemp : Positive/ Negative
Why? _______________________________________________________________

Nature of the relationship of wggr infl to unemp: Positive/ Negative

Why? _______________________________________________________________

b. Suppose you are given the following results (See appendix) [ NOTE THIS IS NOT A
BONUS QUESTION. YOU ARE REQUIRED TO ANSWER THIS QUESTION ]

b.1 Which model is the best model? MODEL NO. ________ [ 5 points ]
Why?
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b.2 Why did you not choose the other models? [ 5 points for each explanation ]
Model NO. ________
What is wrong with the results of this model?
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Model NO. ________
What is wrong with the results of this model?
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Model NO. ________

What is wrong with the results of this model?
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TIPS FOR QUESTION 666.

1. Answer the bonus question, it will play a key role in determining the right model.
2. READ ALL THE RESULTS CAREFULLY. I have modified the results to have a specific
answer. Use all that you have learned, i.e. MAE MSE AIC SQIC HBIC. But also look for signs
of the violations of the OLS.
3. Theories theories theories theories.....
4. Use model selection criteria
5. I expect your answers to be mostly based on our discussions in econometrics. However
you may use your theory if the econometric process fails.
6. PAY ATTENTION EVEN TO THE SMALLEST DETAILS.

APPENDIX.
Model 2: OLS, using observations 1959-1995 (T = 37)
Dependent variable: unemp
Coefficient
3.89692
-13.15308
0.0175909
0.035939

const
wggr
cpi
infl
Mean dependent var
Sum squared resid
R-squared
F(3, 33)
Log-likelihood
Schwarz criterion
rho

Std. Error
0.901128
0.184878
0.0062497
0.109549

6.086486
58.67342
0.254877
3.762658
-61.03050
136.5047
0.656168

t-ratio
4.3245
2.8280
2.8147
2.3281

p-value
0.00013
0.001362
0.00817
0.0074494

S.D. dependent var

S.E. of regression
Adjusted R-squared
P-value(F)
Akaike criterion
Hannan-Quinn
Durbin-Watson

***
***
***
***

1.478956
1.333410
0.187138
0.899881
130.0610
132.3327
0.698804

Wald's Test on Model 2 when removing infl:

Test statistic: F(1, 33) = 0.107625, p-value 0.744937
Wald's Test on Model 2 when removing cpi:
Test statistic: F(1, 33) = 7.92242, p-value 0.00817015
Wald's Test on Model 2 when removing wggr:
Test statistic: F(1, 33) = 0.685592, p-value 0.0013616

Model 3: OLS, using observations 1959-1995 (T = 37)

Dependent variable: unemp

const
wggr
infl
Mean dependent var
Sum squared resid
R-squared
F(2, 34)
Log-likelihood
Schwarz criterion
rho

Coefficient
5.8757
-0.127799
0.172254

Std. Error
0.618463
0.170743
0.107803

6.086486
72.75934
0.075993
1.398121
-65.01115
140.8551
0.718986

t-ratio
9.5005
-0.7485
1.5979

S.D. dependent var

S.E. of regression
Adjusted R-squared
P-value(F)
Akaike criterion
Hannan-Quinn
Durbin-Watson

p-value
<0.00001
0.45931
0.11933

***

1.478956
1.462867
0.021639
0.260905
136.0223
137.7261
0.562894

Model 4: OLS, using observations 1959-1995 (T = 37)

Dependent variable: unemp
Coefficient
3.78332
-0.199215
-0.0184973

const
wggr
cpi
Mean dependent var
Sum squared resid
R-squared
F(2, 34)
Log-likelihood
Schwarz criterion
rho

Std. Error
0.820954
0.118427
0.00553176

6.086486
58.86478
0.752447
5.740851
-61.09074
133.0142
0.650278

t-ratio
4.6084
1.6822
3.3438

p-value
0.00005
0.0170
0.00202

S.D. dependent var

S.E. of regression
Adjusted R-squared
P-value(F)
Akaike criterion
Hannan-Quinn
Durbin-Watson

***
***
***

1.478956
1.315795
0.808473
0.007111
128.1815
129.8852
0.710473

Model 5: OLS, using observations 1959-1995 (T = 37)

Dependent variable: unemp

const
cpi
infl
Mean dependent var
Sum squared resid
R-squared
F(2, 34)
Log-likelihood
Schwarz criterion
rho

Coefficient
4.49097
0.0147977
0.104937

Std. Error
0.542722
0.00523671
0.070784

6.086486
59.89239
0.239396
5.350671
-61.41091
133.6546
0.682464

t-ratio
8.2749
2.8258
2.4825

S.D. dependent var

S.E. of regression
Adjusted R-squared
P-value(F)
Akaike criterion
Hannan-Quinn
Durbin-Watson

p-value
<0.00001
0.00784
0.04742

***
***
*

1.478956
1.327231
0.184655
0.009543
168.8218
130.5256
0.647053

Augmented Dickey-Fuller test for cpi

including 2 lags of (1-L)cpi (max was 9)
sample size 34
test with constant
model: (1-L)y = b0 + (a-1)*y(-1) + ... + e
1st-order autocorrelation coeff. for e: 0.100
lagged differences: F(2, 30) = 34.435 [0.0000]
estimated value of (a - 1): 0.00778494
test statistic of (a - 1): tau_c(1) = 1.16393
asymptotic p-value of (a - 1): 0.998

Dickey-Fuller test for wggr

sample size 36
test with constant
model: (1-L)y = b0 + (a-1)*y(-1) + e
1st-order autocorrelation coeff. for e: -0.112
estimated value of (a - 1): -0.20265
test statistic of (a - 1): tau_c(1) = -1.86732
p-value of (a - 1): 0.3433

Augmented Dickey-Fuller test for infl

including 5 lags of (1-L)infl (max was 9)
sample size 31
test with constant
model: (1-L)y = b0 + (a-1)*y(-1) + ... + e
1st-order autocorrelation coeff. for e: 0.014
lagged differences: F(5, 24) = 3.724 [0.0123]
estimated value of (a - 1): -0.733921
test statistic of (a - 1): tau_c(1) = -2.92658
asymptotic p-value of (a - 1): 0.00202