Exam 6 - A Time Series 1. What is a disadvantage of time-series smoothing techniques? A. No t-tests are performed to judge statistical significance. B.

They do not measure the trend. C. They are for one time period only. D. Maximum likelihood estimation produces biased estimates. E. Degrees of freedom are large. 2. You are trying to measure the effect of consumer expenditure (x) on the money stock of the U.S. (y). You have yearly data available for the last twenty years. A simple linear model is fit to the data. The DurbanWatson value is 0.34 and the estimate of the first-order autocorrelation is .83. What is your decision concerning the null hypothesis of zero (or negative) autocorrelation? A. Fail to reject H0 because .83 < 1.20 B. Fail to reject H0 because .83 < 1.41 C. Fail to reject H0 because .34 < 1.38 D. Reject H0 because .34 < 1.20 E. Reject H0 because .83 < 1.16 3. In question number 2 above, the interpretation of positive autocorrelation would be that.... A. values in one year are positively correlated with values in the previous year B. money stock and consumer expenditure are positively linearly related during those twenty years. C. money stock and consumer expenditure are not linearly related during those twenty years D. the errors in one year have an interaction effect on the errors in the previous year E. the errors and the years have interaction. 4. What of the following is NOT one of the four components of a time series? A. cyclical effects B. autocorrelation effects C. secular trend D. seasonal variation E. residual effect ANSWERS Exam 6 - A 1. A 2. D 3. A 4. B

Exam 6 - B Questions 1-7 deal with the following situation: in 1974, Congress adopted the Federal-Aid Highway amendments, which reduced the highway speed limit to 55 miles per hour (mph). Since that time, controversy over the social efficiency of the decision has grown. An analysis was conducted to estimate the effect of the 55-mph speed limit on traffic fatalities (Southern Economic Journal, Jan. 1984). Time series data for the United States from 1952 to 1979 (n=28 years) was used to fit a regression model relating traffic fatalities Yt to k=7 independent variables: X1t = Real earned income X2t = Vehicle miles X3t = Ratio of number of youths to number of adults X4t = Percentage of all car purchases that are imported cars X5t = Average highway speed X6t = Percentage of cars traveling between 43 and 60 mph X7t = 0 if 55-mph speed limit imposed 1 if not The results of the multiple regression are summarized below: Yhat-t = -20.016 + 7,544.85 X1t - 0.01046 X2t - 36,758.0 X3t - 117.609 X4t + 1,325.22 X5t - 415.742 X6t + 9,678.08 X6t R-square = 0.987 F = 217.23 d = 1.97

1. Which of the following are NOT problems that could occur with this set of data? (A) Predictions for 1994 may be outside the range of the data. (B) The errors may not satisfy the four assumptions. (C) The relationship among the variables may have changed since the data was collected. (D) Predictions for 1995 will require knowledge of the 1995 values of the independent variables and this knowledge may not exist. (E) All of the above are problems. 2. If the independence assumption has been violated because of the time series nature of the data, then the data (A) are seasonal (B) do not have a trend component (C) are auto-correlated (D) are not auto-correlated (E) are heteroscedastic.

3. When using the Durban-Watson test to test the alternative hypothesis of positive autocorrelation, what will be your decision? (Use K = 5 since K =7 is not in your text) (A) Fail to reject H0 since 1.97 > 1.03 (B) Reject H0 since 1.97 < 1.03 (C) Reject H0 since .97 < 1.03 (D) Fail to Reject H0 since .97 < 1.03 (E) Reject H0 since 217.23 > 1.03. 4. 5. Which of the following is NOT a result of using ordinary least squares with positively correlated errors? (A) the standard error of each coefficient will be too small (B) the t-test of each coefficient will be too large (C) the F test will be too small (D) the MSE will be too small (E) the prediction intervals will be too narrow. 6. If the data was measured quarterly and you are using PROC REG, how many MORE variables would the model now have? (a slightly subtle question) (A) 4 (B) 3 (C) 2 (D) 12 (E) 11

ANSWERS TO EXAM6 B QUESTION 1 E 2 C 3 A 5 C 6 B BLUE

Exam 6 - C 2. When modeling business time-series data with simple linear regression, what might cause the values of Y to be related from one time period to the next? consecutive months? A. negative autocorrelation. B. violation of equal variance. C. extremely inflationary periods. D. residuals are always positive. E. extremely correlated independent variables. 3. In exponential smoothing, what happens to the importance of the current value when the smoothing constant is increased? A. its importance increases. B. its importance is first high then low. C. its importance remains the same. D. its importance increases as long as it is within the moving average. E. its importance decreases. 5. If you had 10 years of quarterly data and 4 independent variables, what would be the rejection region for testing for autocorrelation? A. Reject Ho if F > F(3, 36, 0.05) B. Reject Ho if F < F(3, 36, 0.05) C. Reject Ho if |t| > t(36, 0.025) D. Reject Ho if d > du (40, 4, 0.05) E. Reject Ho if d < dl (40, 4, 0.05) 6. What procedure can be used to calculate the statistic needed for testing first order autocorrelation in NCSS? A. the one way anova procedure. B. scatterplots C. the regression procedure D. descriptive statistics. E. cross-tabulation Answers to Exam 6 - C 1 omit 2c 3a 4 omit 5e 6. c