CEA Quantitative Analysis and Econometrics 5

Question 1

A regression discontinuity design (RDD) estimates causal effects by exploiting:

Accepted Answer

A discontinuous jump in treatment probability at a known cutoff value

Answer

RDD compares outcomes just above and just below a cutoff where treatment assignment changes sharply, using the discontinuity as a source of quasi-random variation.

Question 2

In a GARCH(1,1) model used for financial econometrics, the conditional variance depends on:

Accepted Answer

The previous squared error term and the previous period's conditional variance

Answer

GARCH(1,1) specifies conditional variance as a function of both the lagged squared shock (ARCH term) and the lagged conditional variance (GARCH term).

Question 3

The concept of identification in econometrics refers to:

Accepted Answer

The ability to consistently estimate model parameters from the available data

Answer

Identification means the model parameters can be uniquely determined from the data's population moments; without it, multiple parameter values fit equally well.

Question 4

When applying the Box-Jenkins methodology to build an ARIMA model, the correct sequence of steps is:

Accepted Answer

Identification → Estimation → Diagnostic checking → Forecasting

Answer

Box-Jenkins follows: identify appropriate ARIMA orders using ACF/PACF, estimate parameters, check diagnostics with residual tests, then use the validated model to forecast.

Question 5

An economist uses two-stage least squares (2SLS) because OLS yields biased estimates. The bias in OLS arises from:

Accepted Answer

Correlation between an explanatory variable and the error term (endogeneity)

Answer

Endogeneity — when a regressor is correlated with the error term — causes OLS to be inconsistent; 2SLS uses instruments to purge the endogenous variation.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Quantitative Analysis and Econometrics 5