Multiple Choice Test Bank Questions No Feedback – Chapter 7
Correct answers denoted by an asterisk.
1. Which of the following are characteristics of vector autoregressive (VAR) models?
(i) They are typically a-theoretical and data driven
(ii) they can easily lead to overfitting
(iii) all variables on the right hand side of the equation are pre-determined
(iv) their interpretation is often difficult from a theoretical perspective
For questions 2 and 3, consider the following set of simultaneous equations:
tt
ttttt
tttt
t
t
t
uY
uXXXY
uXYY
Y
Y
Y
3110
2342312110
11432210
3
2
1
++
+++++
++++
=
=
=
( )
( )
( )
1
2
3
Assume that the Y’s are endogenous and the X’s exogenous variables, and that the error
terms are uncorrelated.
2. Which of the following statement is true of equation (3)?
3. Estimation of equation (2) on its own using OLS would result in
4. Which of the following statements is incorrect?
5. Which of the following could be viewed as a disadvantage of the vector autoregressive
(VAR) approach to modelling?
6. Consider the following bivariate VAR(2):
tttttt
tttttt
uyyyyy
uyyyyy
22224122321221121202
12214121321121111101
+++++=
+++++=
−−−−
−−−−
Which of the following coefficient significances are required to be able to say that y1
Granger-causes y2 but not the other way around?
7. Which of the following statements is true concerning VAR impulse response
functions?
(i) Impulse responses help the researcher to investigate the interactions between the
variables in the VAR.
(ii) An impulse response analysis is where we examine the effects of applying unit shocks
to all of the variables at the same time.
(iii) Impulse responses involve calculating the proportion of the total forecast error
variance of a given variable is explained by innovations to each variable.
(iv) If the 2 standard error bars around the impulse responses for a given lag span (i.e.
include) the x-axis, it would be said that the response is statistically significant.
8. In the context of simultaneous equations modelling, which of the following statements
is true concerning an exogenous variable?
9. Comparing the information criteria approach with the likelihood ratio test approach to
determining the optimal VAR lag length, which one of the following statements is true?
10. The second stage in two-sage least squares estimation of a simultaneous system
would be to
11. Which of these assumptions is violated when an equation is estimated using OLS
where is in fact part of a simultaneous structural system?
12. A variable x is defined as ________ if its value is determined outside of the equation
or system of equations. What is the blank?
13. Which of these is not an appropriate method of estimating equations that are from a
simultaneous system?
14. Which of these statements is true about vector autoregressive models?
(I) They allow the value of a variable to depend on more than just its own lags
(II) All variables are endogenous
(III) The researcher does not need to specify which variables are endogenous or
exogenous
(IV) All variables are exogenous
15. Which of these is an approach used to determine the appropriate lag lengths of VAR
models?
16. Assuming that you have a VAR model with 2 variables (A and B) including many
lags, how can you test whether A cause Granger-causes changes in B?
17. Impulse responses:
18. Variance decompositions