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ECONOMICS TRIPOS PART IIA

Thursday 3 May 2012 10:00 - Tuesday 15 May 2012 15:00

Paper 3 Take-Home Project

THEORY AND PRACTICE OF ECONOMETRICS I

Candidates should answer one question only.

Answers to questions should not exceed 2000 words. They may include up toa total of eight tables and/or graphs.

This paper carries 40% of the mark for Paper 3.

Please ensure the question number and title appear on your title page.

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A note on data sources and denitions is at the end

1 Identify and evaluate the inuence of the main factors associated withvariations in the long-term yield curve for UK government bonds (gilts)between 1970 and 2011.

2 Using Eurostat New Cronos Data on gross domestic product and on un-employment rates:

(a) Evaluate and explain movements in the Okun coecient (the ratioof the percentage change in GDP to the percentage change in un-employment) for the UK, France and Germany between 1995 and2011.

(b) State how you would test for the hypothesis that dierences acrosscountries in the Okun coecient can be explained by dierences inthe exibility of their labour markets.

3 Examine and explain movements in UK house prices between 1995 and2011. Comment on the implications of your analysis for scal and mone-tary policy measures to control price ination.

4 Evaluate the proposition that education and training impact dierentiallyacross countries on labour market participation across countries.

5 The dataset supplied relates to the health, health insurance and employ-ment status of a random sample of more than 8000 workers in the UnitedStates surveyed in 1996. Using these data:

(a) Are the self-employed less likely to have health insurance than wage-earners?

(b) Does controlling for other variables (age, education, ethnicity, etc.)aect the outcome of your analysis?

(c) Explain and justify the model you have used in which the dependentvariable is binary.

(d) What improvements in the dataset would you recommend to enablea more reliable investigation?

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A note on data sources. Numbers refer to the questions above.

Data sets for use for questions 1 and 5 are athttp://www.econ.cam.ac.uk/intranet/projects/part2a/datasets2012/data.html

1 The spreadsheet Yield Curve Analysis gives monthly nominal yields forUK gilts for up to 25 years ahead, beginning in 1970 and is from:http://www.bankofengland.co.uk/statistics/Pages/yieldcurve/default.aspx,where more relevant data can be found.

Price ination and GDP data are at: www.statistics.gov.uk.

2 Eurostat New Cronos data are available via www.esds.ac.uk. Raven log-inrequired.

3 House price data can be found at the Department for Communities andLocal Government website:http://www.communities.gov.uk/housing/publications/statistics/

The Halifax house price index is at:http://www.lloydsbankinggroup.com/media1/economic_insight/house_price_tools_page.asp.

Price ination, GDP and other data are at: www.statistics.gov.uk.

4 Data on vocational education and training and labour market participa-tion across a range of OECD countries are available from Education at aGlance 2011 at:http://www.oecd.org/dataoecd/61/62/48630772.pdfwhich provides a link to the statistics database.

(TURN OVER)

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5 The series in the data set are:

Variable Description

healthy self-reported health status binary variable 1 = Healthy

anylim any limitation binary variable 1 = Limitation

insured health insurance binary variable 1 = Insured

selfemp employment binary variable 1 = Self Employed

age age in years

deg_nd education binary variable 1 = no degree

deg_ged education binary variable 1 = GED (High School Equivalent)

deg_hs education binary variable 1 = High School

deg_ba education binary variable1 = Bachelor

deg_ma education binary variable1 = Masters

deg_phd education binary variable1 = Ph.D.

deg_oth education binary variable1 = Other.

familysz family size

race_bl race binary variable 1 = Black

race_wh race binary variable 1 = White

race_ot race binary variable 1 = Other than Black or White

reg_ne region binary variable 1 = NorthEast

reg_mw region binary variable 1 = MidWest

reg_so region binary variable 1 = South

reg_we region binary variable 1 = West

male Sex binary variable 1 = Male

married married binary variable 1 = Married

END OF PAPER