The model: y* = β?₀ + xβ + u,given u|x ~ Normal(0,σ²)and y = max(0,y*)represents a: A)ARCH model. B)GARCH model C)Tobit model D)logit model

Question

Quizplus · Accepted Answer

This model represents a Tobit model because the dependent variable y has a lower bound of 0 and there is a latent variable y* that follows a linear equation with random error u. The error term u follows a normal distribution with mean 0 and variance dependent on the value of x (σ²), which indicates heteroscedasticity. However, there is no indication of autoregressive behavior or conditional variance present, which are characteristic of ARCH or GARCH models. Finally, there is no indication that the response variable is binary or categorical, ruling out a logit model.

The Model: Y* = β?0 + Xβ + U,given U|x

The Model: Y* = β?₀ + Xβ + U,given U|x