Exam 8: Modelling Long-Run Relationships in Finance

Consider the following bivariate VAR(2): Which of the following coefficient significances are required to be able to say that y₁ Granger-causes y₂ but not the other way around?

Variance decompositions

Which of the following could be viewed as a disadvantage of the vector autoregressive (VAR) approach to modelling?

Which of these is not an appropriate method of estimating equations that are from a simultaneous system?

Which of the following statement is true of equation (3)?

The second stage in two-sage least squares estimation of a simultaneous system would be to

Which of these is an approach used to determine the appropriate lag lengths of VAR models?

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?

Which of these assumptions is violated when an equation is estimated using OLS where is in fact part of a simultaneous structural system?

A variable x is defined as ??________ if its value is determined outside of the equation or system of equations. What is the blank?

In the context of simultaneous equations modelling, which of the following statements is true concerning an exogenous variable?

Which of the following statements is incorrect?

Estimation of equation (2) on its own using OLS would result in

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

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?

Impulse responses:

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

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 $\pm$ 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.