Escolar Documentos
Profissional Documentos
Cultura Documentos
Course structure
Course Description Introduction to econometric models and techniques, simultaneous equations, emphasizing regression. Advanced topics include instrumental variables, panel data methods, measurement error, and limited dependent variable and time series models.
Course evaluation Quizzes, Home Assignments Mid-term End-term Project reports (2) & presentations (2) Class attendance, Attitude
Text Books Econometric Methods by Jack Johnston and John DiNardo 4th Edition. Econometric models and economic forecasts by Robert S. Pindyck and Daniel L. Rubinfeld 4th Edition An introduction to applied econometrics a time series approach by Kerry Patterson
Steven D. Levitt & Stephen J. Dubner Steven D. Levitt & Stephen J. Dubner Ian Ayres
Data
Data sources Data definition Cross section data; time series data Panel data - , = ,1 + ,2 , + , , where (i,t) individual I at time t.
Implication of ,1 = 1 & ,2 = 2 . Or, ,2 ~ 2 , 2 Data transformation & aggregation (example, is it better to forecast all component inflation series and then aggregate the forecasts, or is it better to aggregate right away?
Preliminaries
Data cleaning
Non random attrition Sample selection bias (non random sample) Influential observations robust estimation methods
find parameters which minimize 2 =
1 (1 1 2 1 )2 ++ ( 1 2 )2
Preliminaries continued
Alternative estimation methods Maximum likelihood method find such that are most likely values Bayesian method estimate posterior distribution of the parameters using data, model and priors Diagnostics Portmanteau test or model specification test Tests on the error terms Comparing two models Likelihood Ratio (LR) test or Lagrange Multiplier (LM) principle or Wald method
Specification
Examples
Convergence between rich and poor countries Do countries converge in per capita GDP? Or in living standards? Or, instead, are they caught in a poverty trap?
2 = 1 + 2 1 + + with 2 < 1 and ~ 0, and is censored variable + 2 + , 1 + 2 + 0 = 1 0, 1 + 2 + < 0 2 With ~ 0, and an explanatory variable
Franses, Ph.H.B.F and R.Paap Censored latent effects autoregression, with an application to US unemployment Journal of Applied Econometrics Volume 17, Issue 4, pages 347366, July/August 2002. http://hdl.handle.net/1765/1532
Examples
Voting decisions Undecided voters tend to fall as elections near. Results show that undecided voters start to make up their minds nine weeks before the national elections. Forecasting weekly temperatures Is the forecast uncertainty for weekly temperatures constant throughout the year?
Franses, Philip Hans, Jack Neele and Dick J.C. van Dijk (2001), Modeling asymmetric volatility in weekly Dutch temperature data, Environmental Modeling and software, 16, 131-137. http://repub.eur.nl/res/pub/1533/
Distribution
Normal distribution
Distribution
The probability density function (pdf) of an exponential distribution is
Distribution
Operations on a single random variable If X is distributed normally with mean and variance 2, then The exponential of X is distributed log-normally: eX ~ ln(N(,2)). The absolute value of X has folded normal distribution: |X| ~ Nf(,2). If = 0 this is known as the halfnormal distribution. The square of X/ has the noncentral chi-squared distribution with one degree of freedom: X2/2 ~ 21(2/2). If = 0, the distribution is called simply chi-squared. The distribution of the variable X restricted to an interval [a,b] is called the truncated normal distribution. (X )2 has a Lvy distribution with location 0 and scale 2.
Combination of two independent random variables If X1 and X2 are two independent standard normal random variables with mean 0 and variance 1, then Their sum and difference is distributed normally with mean zero and variance two: X1 X2 N(0, 2). Their product Z = X1X2 follows the "product-normal" distribution with density function fZ(z) = 1K0(|z|), where K0 is the modified Bessel function of the second kind. This distribution is symmetric around zero, unbounded at z = 0, and has the characteristic function Z(t) = (1 + t2)1/2. Their ratio follows the standard Cauchy distribution: X1 X2 Cauchy(0, 1). Their Euclidean norm has the Rayleigh distribution, also known as the chi distribution with 2 degrees of freedom.
Distribution
Combination of two or more independent random variables If X1, X2, , Xn are independent standard normal random variables, then the sum of their squares has the chi-squared distribution with n degrees of freedom If X1, X2, , Xn are independent normally distributed random variables with means and variances 2, then their sample mean is independent from the sample standard deviation, then the ratio of these two quantities will have the Student's t-distribution with n1 degrees of freedom:
If X1, , Xn, Y1, , Ym are independent standard normal random variables, then the ratio of their normalized sums of squares will have the F-distribution with (n, m) degrees of freedom:
Distribution
A discrete random variable X is said to have a Poisson distribution with parameter >0, if for n=0,1, The probability mass function is given as, ; = also its variance.
!
Examples: The number of phone calls arriving at a call centre within a minute. The number of goals in sports involving two competing teams.
As the number of discrete events increases, the function begins to resemble a normal distribution
Comparison of probability density functions,p(k) for the sum of n fair 6-sided dice to show their convergence to a normal distribution with increasing n, in accordance to the central limit theorem.
Classical assumptions
1. Regression model is linear, correctly specified with an additive error term. 2. Error term has zero population mean 3. All explanatory variables are uncorrelated with the error term 4. Observations of the error term are uncorrelated with each other (no serial correlation)
Regression analysis
1. 2. 3. 4. 5. 6. Review the literature and develop the theoretical model Specify the model Hypothesize the expected sign of the coefficients Collect the data. Inspect and clean the data Estimate and evaluate the equation Document the result