Chapter 12
1. In the presence of serial correlation:
a. estimated standard errors remain valid.
b. estimated test statistics remain valid.
c. estimated OLS values are not BLUE.
d. estimated variance does not differ from the case of no serial correlation.
2. When a series is stationary, weakly dependent, and has serial correlation:
a. the adjusted R2 is inconsistent, while R2 is a consistent estimator of the population parameter.
b. the adjusted R2 is consistent, while R2 is an inconsistent estimator of the population parameter.
c. both the adjusted R2 and R2 are inconsistent estimators of the population parameter.
d. both the adjusted R2 and R2 are consistent estimators of the population parameter.
3. Which of the following is a test for serial correlation in the error terms?
a. Johansen test
b. Dickey Fuller test
c. Durbin Watson test
d. White test
4. For a given significance level, if the calculated value of the Durbin Watson statistic lies between the
lower critical value and the upper critical value, _____.
a. the hypothesis of no serial correlation is accepted
b. the hypothesis of no serial correlation is rejected
c. the test is inconclusive
d. the hypothesis of heteroskedasticity is accepted
5. Which of the following statements is true?
a. When explanatory variables are not strictly exogenous, the t test for serial correlation is valid.
b. When explanatory variables are not strictly exogenous, the Durbin Watson test for serial correlation is
valid.
c. Breusch-Godfrey test can be used to check for second order serial correlation.
d. White test can be used to check for second order serial correlation.
6. The Breusch-Godfrey test statistic follows a:
a. χ2distribution.
b. t distribution.
c. normal distribution.
d. F distribution.
7. In a model based on a weakly dependent time series with serial correlation and strictly exogenous
explanatory variables, _____.
a. the feasible generalized least square estimates are unbiased
b. the feasible generalized least square estimates are BLUE
c. the feasible generalized least square estimates are asymptotically more efficient than OLS estimates
d. the feasible generalized least square estimates are asymptotically less efficient than OLS estimates
8. Which of the following is an example of FGLS estimation?
a. Dickey-Fuller estimation
b. Vector error correction estimation
c. Prais-Winsten estimation
d. OLS estimation.
9. Which of the following is the reason why standard errors measured by OLS differ from standard errors
measured through Prais-Winsten transformation?
a. OLS standard errors account for serial correlation, whereas Prais-Winsten estimations do not.
b. Prais-Winsten standard errors account for serial correlation, whereas OLS estimations do not.
c. Prais-Winsten standard errors account for heteroskedasticity, whereas OLS estimations do not.
d. OLS standard errors account for heteroskedasticity, whereas Prais-Winsten estimations do not.
10. Which of the following identifies an advantage of first differencing a time-series?
a. First differencing eliminates most of the serial correlation.
b. First differencing eliminates most of the heteroskedastcicty.
c. First differencing eliminates most of the multicollinearity.
d. First differencing eliminates the possibility of spurious regression.
11. Which of the following is a limitation of serial correlation-robust standard errors?
a. The serial correlation-robust standard errors are smaller than OLS standard errors when there is serial
correlation.
b. The serial correlation-robust standard errors can be poorly behaved when there is substantial serial
correlation and the sample size is small.
c. The serial correlation-robust standard errors cannot be calculated for autoregressive processes of an
order greater than one.
d. The serial correlation-robust standard errors cannot be calculated after relaxing the assumption of
homoskedasticity.
12. Which of the following statements is true?
a. Prais-Winsten and Cochrane-Orcutt transformations are consistent when explanatory variables are
not strictly exogenous.
b. The SC-robust standard errors cannot be estimated in models with lagged dependent variables.
c. The SC-robust standard errors work better after quasi-differencing a time series that is expected to be
serially correlated.
d. Estimation of SC-robust standard errors is independent of the sample size.
13. In the presence of heteroskedasticity, the usual OLS estimates of:
a. standard errors are valid, whereas the t statistics and F statistics are invalid.
b. t statistics are valid, but the standard errors and F statistics are invalid.
c. F statistics are valid, but the standard errors and t statistics are invalid.
d. standard errors, t statistics, and F statistics are invalid.
14. Which of the following tests can be used to test for heteroskedasticity in a time series?
a. Johansen test
b. Dickey-Fuller test
c. Breusch-Pagan test
d. Durbin’s alternative test
15. The equation u2t = α0 + α1u2t – 1 + vt is an autoregressive model in _____.
a. ut
b. u2t
c. vt
d. ut – 1
16. In presence of serial correlation, the OLS variance formula accurately estimates the true variance of
the OLS estimator.
17. Durbin’s alternative test is valid even if the explanatory variables are strictly exogenous.
18. Consistency of feasible generalized least square estimators requires the error term to be correlated
with lags of the explanatory variable.
19. FGLS estimates are efficient when explanatory variables are not strictly exogenous.
20. In time series regressions, it is advisable to check for serial correlation first, before checking for
heteroskedasticity.