You can answer each question in about two or three sentences. Again, put some thought into your answer but this is not a major essay. Your goal is to show what is going on with the key concepts we have discussed in class so far.

The exam should be done by each individual alone. There is to be no collaboration or collusions with other students. Answer in your own words, you are free to consult notes and the text, but do not cut and paste from the web. As presented in class, the essays may be done with a referral to formulae, but all of the written material in the essay is original, “synthetic” independent work, with no copying of published or unpublished material from the web or any other source.

As you answer each question, please paste in the question number and question before your answer.

1. What is the usefulness of GARCH modeling and estimation? How does GARCH differ from ARCH modeling?

2. What are the advantages of using maximum likelihood estimators, and what are the drawbacks?

3. What is meant by the identification problem in econometrics?

4. What is the difference between a reduced form parameter and a structural parameter?

5. What is the key benefit of using fixed effects panel estimation?

6. Why and how do we do instrumental variables (IV) estimation?

7. What is the relevance of the McLeod-Li test of autocorrelation in the squared residuals?

8. What is a Taylor expansion and how does this help us do parameter estimation in non-linear models, through Newton-type optimization methods?

9. What is meant by the “curse of dimensionality”?

10. What is the Durbin-Wu-Hausman test, and what is its usefulness?