Chapter 13
1. Which of the following is a reason for using independently pooled cross sections?
a. To obtain data on different cross sectional units
b. To increase the sample size
c. To select a sample based on the dependent variable
d. To select a sample based on the independent variable
2. Pooling independent cross sections across time is useful in providing precise estimators if _____.
a. the relationship between the dependent variable and at least some of the independent variables
remains constant over time
b. the relationship between the dependent variable and at least some of the independent variables is
linear
c. the relationship between the dependent variable and at least one of the independent variables
changes over time
d. the relationship between the dependent variable and at least one of the independent variables is
positive
3. A Chow test _____.
a. is used to test the presence of heteroskedasticty in a regression model.
b. is used to determine how multiple regression differs across two groups.
c. cannot detect changes in the slope coefficients of dependent variables over time.
d. cannot be computed for more than two time periods.
4. Which of the following is true of a natural experiment?
a. A natural experiment occurs when some endogenous event changes the environment in which
individuals, families, firms, or cities operate.
b. The control group in a natural experiment is randomly chosen.
c. The treatment group in a natural experiment is randomly chosen.
d. Control and treatment groups in a natural experiment arise due to an exogenous event.
5. The average treatment effect measures _____.
a. the effect of a policy or program on the dependent variable
b. the effect of unobserved factors on observed explanatory variables
c. the effect of a change in an explanatory variable on other explanatory variables
d. the effect of unobserved factors on the average outcome of the dependent variable
6. Idiosyncratic error is the error that occurs due to _____.
a. incorrect measurement of an economic variable
b. unobserved factors that affect the dependent variable and change over time
c. unobserved factors that affect the dependent variable and do not change over time
d. correlation between the independent variables
7. A regression model exhibits unobserved heterogeneity if _____.
a. there are unobserved factors affecting the dependent variable that change over time
b. there are unobserved factors affecting the dependent variable that do not change over time
c. there are unobserved factors which are correlated with the observed independent variables
d. there are no unobserved factors affecting the dependent variable
8. Composite error is the error that occurs due to _____.
a. the incorrect measurement of explanatory variables
b. the inclusion of too many explanatory variables in the model
c. correlation between the independent variables
d. unobserved factors affecting a dependent variable
9. Ordinary least squares estimation is subject to heterogeneity bias if _____.
a. the regression model exhibits heteroskedasticty
b. the unobserved effect is correlated with the observed explanatory variables
c. the regression model includes a lagged dependent variable
d. the explanatory variables do not change over time
10. Which of the following assumptions is required to obtain a first-differenced estimator in a two-
period panel data analysis?
a. The explanatory variable does not change over time for any cross-sectional unit.
b. The explanatory variable changes by the same amount in each time period.
c. The variance of the error term in the regression model is not constant.
d. The idiosyncratic error at each time period is uncorrelated with the explanatory variables in both time
periods.
11. The assumption of “strict exogeneity” in a regression model means that _____
a. the dependent variable is binary
b. all explanatory variables change over time
c. the model does not include a lagged dependent variable as a regressor
d. the model includes all relevant explanatory variables
12. A data set is a balanced panel if it _____.
a. consists of a sample of individuals, households, firms, cities, states, countries, or a variety of other
units, taken at a given point in time.
b. consists of observations on a variable or several variables over time
c. consists of data for each cross sectional unit over the same time period
d. consists of time-demeaned data for different cross sectional units
13. Which of the following assumptions is needed for the usual standard errors to be valid when
differencing with more than two time periods?
a. The regression model exhibits heteroskedasticty.
b. The differenced idiosyncratic error or ∆uit is uncorrelated over time.
c. The unobserved factors affecting the dependent variable are time-constant.
d. The regression model includes a lagged independent variable.
14. First-differenced estimation in a panel data analysis is subject to serious biases if _____.
a. key explanatory variables vary significantly over time
b. the explanatory variables do not change by the same unit in each time period
c. one or more of the explanatory variables are measured incorrectly
d. the regression model exhibits homoscedasticity
15. The general approach to obtaining fully robust standard errors and test statistics in
the context of panel data is known as _____.
a. confounding
b. differencing
c. clustering
d. attenuating
16. If a random sample is drawn at each time period, pooling the resulting random samples gives us a
panel data set.
17. A natural experiment occurs when an endogenous event changes the environment in which
individuals, families, firms, or cities operate.
18. One way of organizing two periods of panel data is to have only one record per cross-sectional unit.
19. Two-period panel data is used for program evaluation and policy analysis.
20. First-differenced estimation gives unbiased estimators if the regression model includes a lagged
dependent variable.