ECONOMICS 6002

Econometrics

Course Outline

Course Plan

A. REVIEW OF THE CLASSICAL LINEAR REGRESSION MODEL

1. Review of the General Linear Model and Ordinary Least Squares (Sept. 4 and 9)

Readings

Greene, chs. 1-4.
Kennedy, chs. 1-3, 11.
“An Introductory Guide to SHAZAM,” SHAZAM Terms and Getting Started.
SHAZAM manual, chs. 1-7, 44-45.

Lecture Outline
SHAZAM Guide

SHAZAM Tutorials (based on Examples in Greene)

Least Squares (Chapter 3 - covers READ, SAMPLE, GENR, STAT, OLS, and TIME commands, and TIME, and LAG functions)
- Table F2.1 - U.S. Consumption and Income, 11 yearly observations, 1940-1950
- Table F3.1 - U.S. Investment, 15 yearly observations, 1968-1982
Sampling Distribution of a Least Squares Estimator (Chapter 4.3 - covers DO, DIM, GEN1, GRAPH and PLOT commands, and NOR function)
Testing a Hypothesis about a Coefficient (Chapter 4.7.1 - covers DUM, SKIPIF, and OLS/PCOV commands)

Table F4.1 - Labour Supply Data from Mroz (1987)

Confidence Intervals for Parameters (Chapter 4.7.2 - covers CONFID and TEST commands)

Table F2.2 - U.S. Gasoline Market, 52 yearly observations, 1953-2004

Testing the Significance of the Regression (chapter 4.7.4 - covers use of temporary variables)

Table F4.1 - Labour Supply Data from Mroz (1987)

Multicollinearity

Table F4.2 - The Longley Data, 15 yearly observations, 1947-1962

Testing Nonlinear functions of Parameters: the Delta Method (chapter 4.9.4)

Table F2.2 - U.S. Gasoline Market, 52 yearly observations, 1953-2004

2. Basic Statistical Inference under Ordinary Least Squares (Sept. 11 and 16)

Readings

Greene, ch. 5.
Kennedy, ch. 4.
Berndt, ch. 3.
SHAZAM manual, ch. 8.

Lecture Outline
SHAZAM Guide

SHAZAM Tutorials

Testing Hypotheses (Chapter 5.3.1 - the TEST command)

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

The Restricted Least Squares Estimator (Chapter 5.3.3 - the RESTRICT command)

Table F5.2 - Production Data for U.S. SIC 33: Primary Metals, 27 Statewide Observations

Testing Nonlinear Restrictions (Chapter 5.5 - the TEST command)

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

Forecasting (Chapter 5.6 - the FC command)

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

Assignment #1 - Restricted estimation (Due October 2)

3. Model Specification (Sept. 18 and 23)

Readings

Greene, ch. 6-7.
Kennedy, ch. 5-7, 14.
Berndt, ch. 5.
SHAZAM manual, ch. 14, 36, 40 (pp. 434-436).

Lecture Outline
SHAZAM Guide

Dummy Variables - Modelling structural change, seasonality and more
Comparing linear vs. log-linear models
Testing for Structural Stability - the Chow Test

SHAZAM Tutorials

Using binary variables: Analysis of Covariance (Chapter 6.2)

Table F6.1 - Cost Data for U.S. Airlines, 90 observations on 6 firms, 1970-1984

Nonlinearity in the variables: functional form (Chapter 6.3.1)

Table F4.1 - Labour Supply Data from Mroz (1987)

Nonlinearity in the variables: Identifying Nonlinearity (Chapter 6.3.2)

Table F10.1 - Cost Function, 145 U.S. Electricity Producers, 1955 data - Nerlove

Modelling and testing for a structural break (Chapter 6.4)

Example 6.6 - The World Health Report

Table F6.2 - World Health Organization Panel Data, 901 observations

Example 6.7 - Structural Break in the Gasoline Market

Table F2.2 - U.S. Gasoline Market, 52 yearly observations, 1953-2004

Choosing between non-nested models (Chapter 7.3)

Example 7.2 - The J Test
Example 7.3 - the Vuong test

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

Model Selection Criteria (Chapter 7.4)

4. Heteroskedasticity (Sept. 23 and 25)

Readings

Greene, ch. 8 (to 8.7).
Kennedy, ch. 8.1-8.3.
Berndt, ch. 7.
SHAZAM Manual, ch. 19, 20, 37.

Lecture Outline
SHAZAM Guide

SHAZAM Tutorials

A Heteroskedastic Regression (Chapter 8.4)
Estimating the Appropriate Covariance Matrix for Ordinary Least Squares - the White Estimator (Chapter 8.4.4)
Testing for Heteroskedasticity (Chapter 8.5) - White's General Test and the Breusch-Pagan/Godfrey Test

Table F8.1 - Income and Expenditure Data, 100 cross section observations

B. EXTENSIONS OF THE CLASSICAL LINEAR REGRESSION MODEL

1. Panel Data Models (Sept. 30)

Readings

Greene, ch. 9, sections 9.1-9.6.
Kennedy, ch. 17.
SHAZAM Manual, ch. 24.
Hsiao, Cheng, “Why Panel Data?”, University of Southern California, Institute of Policy Research, Working Paper 05.33, September 2005.

Lecture Outline
SHAZAM Guide

Pooling Time-Series Cross-Section Data

SHAZAM Tutorials

The Pooled Regression Model (Chapter 9.3).

Table F9.1 - Cornwell and Rupert, Labor Market Data, 595 individuals, 7 years

The Fixed-Effects and Random Effects Models (Chapter 9.4 and 9.5) (DIFFICULT)

Table F6.1 - Cost Data for U.S. Airlines, 90 observations on 6 firms, 1970-1984

2. Systems Estimation (Oct. 2)

Readings

Greene, ch. 10 (except 10.3).
Berndt, ch. 9.
SHAZAM Manual, ch. 29.

Lecture Outline
SHAZAM Guide

Sets of Linear Equations - SUR Estimation

SHAZAM Tutorials

The Seemingly Unrelated Regressions Model (Chapter 10.2)

Table F9.3 - Grunfeld Investment Data, 100 yearly observations on 5 Firms for 1935-1954

Systems of Demand Equations: Singular Systems (Chapter 10.4)

Cobb-Douglas Cost Function (Chapter 10.4.1)

Table F10.1 - Cost Function, 145 U.S. Electricity Producers, 1955 data - Nerlove

Flexible Functional Forms: the Translog Cost Function (Chapter 10.4.2)

Table F10.2 - Manufacturing Costs, U.S. Economy, 25 yearly observations,1947-1971

SHAZAM Procedures

Randcoef - Procedure for Estimation of Random Coefficient Model

Sample command file

3. Non-Linear Estimation (Oct. 7 and 16)

Readings

Greene, ch. 11.1-11.5
Kennedy, ch. 6.
SHAZAM Manual, ch. 22, 12.

Lecture Outline
SHAZAM Tutorials

Nonlinear regression and nonlinear least squares (Chapter 11.3)

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

Hypothesis testing and parametric restrictions (Chapter 11.4)

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

The Box-Cox transformation (Chapter 11.3.2)

Table F14.1 - U.S Statewide Data on Transportation Equipment Manufacturing, 25 observations

Assignment #2 - Non-Linear Estimation (Due November 4)

4. Instrumental Variables Estimation (Oct. 21)

Readings

Greene, ch. 12.
Kennedy, ch. 9.1-9.3.
Berndt, ch. 8.
SHAZAM Manual, chs. 29, 33, 40 (pp. 432-33)

Lecture Outline
SHAZAM Tutorials

Instrumental Variables Estimation (Chapter 12.3)

Table F9.1 - Cornwell and Rupert, Labor Market Data, 595 individuals, 7 years

Hausman and Wu Specification Tests (Chapter 12.4)
Nonlinear instrumental variables estimation (Chapter 12.7)

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

5. Simultaneous Equations Models (Oct. 23)

Readings

Greene, ch. 13.
Kennedy, ch. 10.
Berndt, ch. 10.
SHAZAM Manual, ch. 29.

Lecture Outline

Overheads

SHAZAM Tutorials

Comparison of Methods - Klein's Model I (Section 13.7)

LIML - Procedure for Limited Information Maximum Likelihood Estimation

Specification Tests - overidentification and exogeneity (Section 13.8)

Overid - Procedure for Testing Overidentification Restrictions

Properties of Dynamic Models (Section 13.9)

Table F13.1 - Data for Klein's Model I, 22 yearly observations, 1920-1941

Assignment #3 - Simultaneous Systems Estimation (Due December 2)

C. (RELATIVELY) ADVANCED ECONOMETRICS

1. Robust and Nonparametric Estimation (Oct. 30)

Readings

Greene, ch. 14.1, 14.3-14.5.
Kennedy, ch. 20.
SHAZAM Manual, ch. 23, 26.

Lecture Outline
SHAZAM Tutorials

Least Absolute Deviations (LAD) Estimation

Table F14.1 - U.S Statewide Data on Transportation Equipment Manufacturing, 25 observations

Partially Linear Regression
Nonparametric (Kernel) Regesssion

Table F4.3 - Cost Function, 123 1970 Cross-section Firm level observations (Christensen-Greene)

2. Maximum Likelihood Estimation (Nov. 4 and 6)

Readings

Greene, ch. 16.1-16.6.
Kennedy, ch. 2.9.
SHAZAM Manual, ch 21 & 22.

Lecture Outline
SHAZAM Tutorials

Estimating Maximum Likelihood and its Asymptotic Variance
Three Likelihood Based Test Procedures

Table FC.1- Observations on Income and Education, 20 observations

3. Autocorrelation (Nov. 11 and 13)

Readings

Greene, ch. 19
Kennedy, Ch. 8.4
SHAZAM Manual, ch. 11.

Lecture Outline
SHAZAM Guide

SHAZAM Tutorials

Examples

Money Demand Equation
Autocorrelation Induced by Model Misspecification
Negative Autocorrelation in the Phillips Curve

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV
Table F2.2 - U.S. Gasoline Market, 52 yearly observations, 1953-2004

Autocorrelation Consistent Covariance Estimation
Testing for Autocorrelation / Estimation of a Model with Autocorrelation
Tests for Common Factors
Autoregressive Conditional Heteroskedasticity

Table F19.1 - Bollerslev and Gyysels Exchange Rate Data, 1974 daily observations

4. Dynamic Distributed Lag Models (Nov. 18)

Readings

Greene, ch. 20
Kennedy, section 9.4
Berndt, ch. 6.
SHAZAM Manual, cg. 15.

Lecture Outline
SHAZAM Guide

Working with lagged variables

SHAZAM Tutorials

Simple Distributed Lag Models

Expectations-Augmented Phillips Curve

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

Price and Income Elasticities of Demand for Gasoline

Table F2.2 - U.S. Gasoline Market, 52 yearly observations, 1953-2004

A Rational Lag Model
An Error Correction Model

5. Time Series Models (Nov. 20, 25)

Readings

Greene, chs. 21.1, 21.2, 22.
Kennedy, ch. 18.
Juselius & Hendry, “Explaining Cointegration Analysis: Part II,” The Energy
Journal, 22:1, 75-120. (2001). Downloadable through MUN Library.
SHAZAM Manual, Chs. 10, 13.

Lecture Outlines

Stationary vs. Non-Stationary Time Series Processes

A SHAZAM program generating an example of a Random Walk

Cointegration

SHAZAM Tutorials

Stationary Stochastic Processes

Table F21.1 - Bond Yield on a Moody's Aaa Corporate Bond, 1990-1994 Monthly

Nonstationary Series and Unit Roots

Table F21.2 - Money, Output, and Price Deflator Data, Quarterly, 1950-1983

The Dickey-Fuller Tests

Table F5.1 - U.S. Macroeconomics Data Set, Quarterly, 1950I to 2000IV

The KPSS Test of Stationarity
Cointegration

SHAZAM Procedure for Johansen Cointegration Test

Command file : johan.sha
Data file : macro.txt

6. Limited and Discrete Dependent Variable Models (Nov. 27, Dec. 2)

Readings

Greene, chs. 23.1-23.4, 23.10-23.11, 24.
Kennedy, chs. 15 and 16.
Joel L. Horowitz and N.E. Savin, “Binary Response Models: Logits, Probits and
Semiparametrics”, Journal of Economic Perspectives 15:4, 43-56, Fall
2001. Downloadable through MUN Library.
Berndt, ch. 11.
SHAZAM Manual, chs. 25, 28.

Lecture Outlines

SHAZAM Guide

Logit and Probit Analysis

SHAZAM Tutorials

Estimation and Inference in Binary Choice Models

Table F16.1 - Data Used to Study Program Effectiveness (Spector and Mazzeo 1980)

Specification Tests for Binary Choice Models

Table F4.1 - Labour Supply Data from Mroz (1987)

Heckman Two-Step Estimation

Last Year's Final Exam

On-line Resources

The Website contains an annotated research paper that can serve as a sample paper for an introductory econometrics class. It includes “bubble” annotations that describe the purpose of each section, paragraph and table. The annotations also point out conventions used for presenting descriptive statistics and regression results, and for citing existing work. The Website also includes a list of concepts with links to the places where each is illustrated.

Econometric Resources on the Internet
Erasmus Universtiy Practical Econometrics
Econometric Links of the Econometrics Journal
Free Econometrics Software
- EasyReg International
- gretl
- Grocer
- Free Statistics page
Econometrics Lecture Notes
- Herman J. Bierans (Penn State)

Introductory Econometrics by Christopher Ferrall, Queen's University.
Andrew J. Buck (Temple University)