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0322-In-Class - Exercise

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8 views1 page

0322-In-Class - Exercise

Uploaded by

王曉明
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© © All Rights Reserved
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Financial Econometrics. In-Class exercise.

Name (ID):

March 22, 2024

1. What is the definition of forecast error?


Solution:
we define the forecast error f by

f = y0 − ŷ0 = (β1 + β2 x0 + e0 ) − (b1 + b2 x0 )

2. How do you normlize the forecast error and specify its distribution?
Solution:
Because of f = (y0 − ŷ0 ) ∼ N (0, var(f )), we normlize the forecast error by:

f −0 y0 − ŷ0
= ∼ tN −2
se(f ) se(f )
q
(x0 −x̄)2
p 1
where se(f ) = var(f
ˆ )= σ̂ 2 [1 + N + P
(xi −x̄)2 ]

3. How do you derive the forecast interval for y0 ?


Solution:
 
y0 − ŷ0
1−α=P −tc ≤ ≤ tc
se(f )
= P (−tc se(f ) ≤ y0 − ŷ0 ≤ tc se(f ))
= P (ŷ0 − tc se(f ) ≤ y0 ≤ ŷ0 + tc se(f ))

Thus, the CI is
[ŷ0 − tc se(f ), ŷ0 + tc se(f )].

4. Write down the slope and elasticity for the following three models:
Solution:
(a) The log-linear model Slope: β2 y, Elasticity: β2 x
(b) The linear-log model Slope: β2 x1 , Elasticity: β2 y1
(c) The log-log model Slope: β2 xy , Elasticity: β2

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