Which of the Following Correctly Highlights a Limitation of Applying

question 20

Multiple Choice

Which of the following correctly highlights a limitation of applying simultaneous equation models to time series data?

• A)Most time series have variables with a unit root and 2SLS is complicated when applied to equations with such variables.
• B)2SLS estimates are inefficient when applied to variables that are not in their levels but in first differences.
• C)It is difficult to form simultaneous equations which satisfy the rank and order conditions using time series data.
• D)The problem of serial correlation greatly limits the efficiency of simultaneous equation models and leads to inefficient estimations.

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