ECS4863 Assignment 1 (ANSWER GUIDE) 2025 - DUE 16 May 2025

,ECS4863 Assignment 1 (ANSWER GUIDE) 2025 -
DUE 16 May 2025 QUESTIONS WITH 100%
VERIFIED AND CERTIFIED ANSWERS.
MULTIPLE CHOICE,ASSURED EXCELLENCE
Contents ;
QUESTION 1
Question 1.1: Omitted Variable Bias and Positive vs. Negative
Bias (4 marks)
Question 1.2: Testing Serial Correlation with Strictly Exogenous
Variables (3 marks)
Question 1.3: Heteroscedasticity and Implications for Inference
(4 marks)
Question 1.4: Definitions (4 marks)
Question 2: Time Series Data Analysis (5 marks)
1. Graph of the Data (Time Series Plot)
2. Stationarity Test (ADF Test)
Summary of Findings
Data Source Citation
Question 3: Time Series Model for South African Consumer
Prices
3.1 Calculating Annual Inflation & Exchange Rate Growth

, 3.2 Stationarity Tests (ADF) for LOIL, LEXCH, LEU_CPI
3.3 Cointegration Analysis
3.4 Error Correction Model (ECM) — Short-Run Dynamics
9Conclusion
References
Question 1: Econometric Theory (15 marks)
1.1 Omitted Variable Bias and Positive vs. Negative Bias (4
marks)
 Omitted Variable Bias (OVB) occurs when a relevant
explanatory variable is left out of a regression model and
that variable is correlated with both the dependent
variable and one or more included regressors.
 Positive Bias: The bias pushes the estimated coefficient
away from zero, overestimating the true effect.
 Negative Bias: The bias pushes the estimated coefficient
towards zero or even negative, underestimating the true
effect.
 Example: In a wage regression, omitting education can bias
the experience coefficient if education is correlated with
experience.
1.2 Testing for Serial Correlation with Strictly Exogenous
Variables (3 marks)