QUESTION TWO; (20 Marks)
a) Explain the meaning of unit root stochastic process
b) From the Data provided in question 2 above, test for Unit Root for the variables using ADF test
and Phillip-Perron Test and determine the order of integration of the variables.
c) Estimate the regression Model using Stationary Data and compare your result in question
TWO (b).
d) Is there any long-run relationships among the variables? How do you know?
e) Express the following equation using Lag Operator and examine the order of
Autoregressive Process AR(p).
???? = ????????? - ??. ??????????? + 0.75??????? + ????
f) Determine whether the AR(p) process in part (e) is stationary or not.
QUESTION FOUR (40 Marks)
A framework of analysis to determine the effects of various factors on export performance in Tanzania
can be formulated by considering all those factors that can potentially play a meaningful role in the
determination of exports in Tanzania. Export growth is basically determined by external factors, for
this real exchange rate and official development assistance are included in the regression model.
However, exports are also affected by domestic factors. In this respect, GDP growth rate, trade
liberalization or degree of openness, indirect taxes, and inflation rate are also explicitly included in
the estimation model. Specified equation for export performance is as follows
EX ? f ?GR,?,TAX ,TL,RER,ODA?
(1)
The variables appearing in the equation are