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    Econometrics I 1

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    Mimansa Bairathi
    This document provides an overview of Professor William Greene's Econometrics I course at the Stern School of Business. The course covers topics such as regression modeling, instrumental variables, robust estimation and nonlinear modeling using econometric methods. Students will prepare to conduct empirical social science research using modern econometric techniques. Requirements include problem sets, a midterm exam, and a take-home final exam.

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    © All Rights Reserved
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    Econometrics I 1

    Uploaded by

    Mimansa Bairathi
    67 views40 pages
    This document provides an overview of Professor William Greene's Econometrics I course at the Stern School of Business. The course covers topics such as regression modeling, instrumental variables, robust estimation and nonlinear modeling using econometric methods. Students will prepare to conduct empirical social science research using modern econometric techniques. Requirements include problem sets, a midterm exam, and a take-home final exam.

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    Introduction to econometrics, lecture notes

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    This document provides an overview of Professor William Greene's Econometrics I course at the Stern School of Business. The course covers topics such as regression modeling, instrumental variables, robust estimation and nonlinear modeling using econometric methods. Students will prepare to conduct empirical social science research using modern econometric techniques. Requirements include problem sets, a midterm exam, and a take-home final exam.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    67 views40 pages

    Econometrics I 1

    Uploaded by

    Mimansa Bairathi
    This document provides an overview of Professor William Greene's Econometrics I course at the Stern School of Business. The course covers topics such as regression modeling, instrumental variables, robust estimation and nonlinear modeling using econometric methods. Students will prepare to conduct empirical social science research using modern econometric techniques. Requirements include problem sets, a midterm exam, and a take-home final exam.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 40

    Econometrics I

    Professor William Greene


    Stern School of Business
    Department of Economics

    1-1/40 Part 1: Introduction


    http://people.stern.nyu.edu/wgreene/Econometrics/Econometrics.htm

    1-2/40 Part 1: Introduction


    Abstract
    Overview: This is an intermediate level, Ph.D. course in Applied
    Econometrics. Topics to be studied include specification,
    estimation, and inference in the context of models that include
    then extend beyond the standard linear multiple regression
    framework. After a review of the linear model, we will develop the
    theory necessary for analysis of generalized linear and nonlinear
    models.
    Topics to be examined:
    Regression modeling
    Instrumental variables
    Robust estimation and inference
    Causal inference
    Nonlinear modeling
    Cross section, time series and panel data
    Objective:
    Preparation to read and carry out empirical social science
    research using modern econometric methods.

    1-3/40 Part 1: Introduction


    Prerequisites

     A previous course that used linear regression


     Mathematical statistics
     Matrix algebra

    1-4/40 Part 1: Introduction


    Readings
     Main text: Greene, W.,
    Econometric Analysis,
    8th Edition,
    Prentice Hall, 2017.

     A few articles
     Notes and materials on the course website:

    http://people.stern.nyu.edu/wgreene/Econometrics/Econometrics.htm

    1-5/40 Part 1: Introduction


    Course Schedule
    No class on:
    Thursday, September 21
    *Tuesday, November 21
    Thursday, November 23
    *Tuesday, November 28
    Added class on:
    Tuesday, December 12
    Midterm: October 24
    Final: Take home; posted December 7,
    due December 19

    1-6/40 Part 1: Introduction


    Practicals
     Software
     NLOGIT provided, supported
    http://people.stern.nyu.edu/wgreene/Econometrics/NLsetup.exe
     SAS, Stata, EViews optional, your choice
     R, Matlab, Gauss, others
     Questions and review as requested
     Problem Sets: (more details later)

    1-7/40 Part 1: Introduction


    Course Requirements

     Problem sets: 5 (30%)


     Midterm, in class (30%)
     Final exam, take home (40%)

    1-8/40 Part 1: Introduction


    Econometrics I

    Part 1 - Paradigm

    1-9/40 Part 1: Introduction


    Econometrics: Paradigm
     Theoretical foundations
     Behavioral modeling: Optimization, labor supply,
    demand equations, etc.
     Microeconometrics and macroeconometrics
     Mathematical Elements
     Statistical foundations
     ‘Model’ building – the econometric model
     Mathematical elements
     The underlying truth – is there one?

    1-10/40 Part 1: Introduction


    Objectives
     Understanding covariation:
     What is the income elasticity of the demand for
    health care in an economy?
     Understanding a relationship:
     How will drivers respond to the availability of a
    new toll road?
     Causal Inference: The search for
    “causal” effects
     Did an antitrust intervention that broke up a
    British boarding schools cartel have an impact
    on fees charged?
     Prediction of an outcome of interest
     Does internet “buzz” help to predict movie
    success?
    1-11/40 Part 1: Introduction
    Trends in Econometrics
     Small structural models
     Pervasiveness of an econometrics paradigm
     Non- and semiparametric methods vs. parametric
     Robust methods / Estimation and inference
     Nonlinear modeling (the role of software)
     Behavioral and structural modeling vs. “reduced form,”
    “covariance analysis”
     Identification and “causal” effects

    1-12/40 Part 1: Introduction


    Data Structures
     Observation mechanisms
     Passive, nonexperimental (the usual)
     Randomly assigned experiment (wishful)
     Active, experimental (occasional)
     The ‘natural experiment’ (occasional, limited)
     Data types
     Cross section
     Pure time series
     Panel –
     Longitudinal data – NLS
     Country macro data – Penn W.T.
     Financial data
    1-13/40 Part 1: Introduction
    Paradigm: Classical Inference

    Population Measurement

    Econometrics
    Characteristics
    Imprecise inference about Behavior Patterns
    the entire population –
    sampling theory and Choices
    asymptotics

    1-14/40 Part 1: Introduction


    Paradigm: Bayesian Inference

    Population Measurement

    Econometrics
    Characteristics
    Sharp, ‘exact’ inference about Behavior Patterns
    only the sample – the ‘posterior’
    density. Choices

    1-15/40 Part 1: Introduction


    An Application:
    Cornwell and Rupert Labor Market Data
    Is Wage Related to Education?
    Cornwell and Rupert Returns to Schooling Data, 595 Individuals, 7 Years
    Variables in the file are
    EXP = work experience
    WKS = weeks worked
    OCC = occupation, 1 if blue collar,
    IND = 1 if manufacturing industry
    SOUTH = 1 if resides in south
    SMSA = 1 if resides in a city (SMSA)
    MS = 1 if married
    FEM = 1 if female
    UNION = 1 if wage set by union contract
    ED = years of education
    LWAGE = log of wage = dependent variable in regressions
    These data were analyzed in Cornwell, C. and Rupert, P., "Efficient Estimation with Panel
    Data: An Empirical Comparison of Instrumental Variable Estimators," Journal of Applied
    Econometrics, 3, 1988, pp. 149-155.

    1-16/40 Part 1: Introduction


    1-17/40 Part 1: Introduction
    Model Building in Econometrics

     Role of the assumptions


     Parameterizing the model
     Nonparametric analysis
     Semiparametric analysis
     Parametric analysis
     Sharpness of inferences

    1-18/40 Part 1: Introduction


    Application: Is there a relationship Nonparametric Regression
    between (log) Wage and Education? Kernel regression of log wage on education

    Semiparametric Regression: Parametric Regression: Least squares –


    Least absolute deviations regression maximum likelihood – regression

    1-19/40 Part 1: Introduction


    A First Look at the Data
    Descriptive Statistics

     Basic Measures of Location and Dispersion


     Graphical Devices
     Box Plots
     Histogram
     Kernel Density Estimator

    1-20/40 Part 1: Introduction


    1-21/40 Part 1: Introduction
    Box Plots
    Shows upward trend in median log wage

    1-22/40 Part 1: Introduction


    Histogram: Pooled data obscure
    within person variation

    What is the source of the variance, variation across people or variation over time?
    1-23/40 Part 1: Introduction
    Kernel density estimator suggests the underlying
    distribution for a continuous variable
    1 n 1  xi  xm* 
    f̂(xm )   i1 K 
    *

    n B  B 
    1 n
    
    n i1
    Q(x i | x *
    m ,B), for a set of points x *
    m

    B  "bandwidth"
    K  the kernel function
    x*  the point at which the density is approximated.
    f̂(x*) is an estimator of f(x*)

    1-24/40 Part 1: Introduction


    The kernel density
    estimator is a
    histogram (of sorts).

    1 n 1  xi  xm* 
    f̂(xm )   i1 K 
    * *
    , for a set of points x m
    n B  B 
    B  "bandwidth" chosen by the analyst
    K  the kernel function, such as the normal
    or logistic pdf (or one of several others)
    x*  the point at which the density is approximated.
    This is essentially a histogram with small bins.

    1-25/40 Part 1: Introduction


    1-26/40 Part 1: Introduction
    1-27/40 Part 1: Introduction
    From Jones and Schurer (2011)
    Stylized Box Plot

    1-28/40 Part 1: Introduction


    From Jones and Schurer (2011)

    1-29/40 Part 1: Introduction


    Objective: Impact of Education
    on (log) Wage

     Specification: What is the right model to


    use to analyze this association?
     Estimation
     Inference
     Analysis

    1-30/40 Part 1: Introduction


    Simple Linear Regression

    LWAGE = 5.8388 + 0.0652*ED

    1-31/40 Part 1: Introduction


    Multiple Regression

    1-32/40 Part 1: Introduction


    Nonlinear Specification:
    Quadratic Effect of Experience

    1-33/40 Part 1: Introduction


    Model Building in Econometrics
    A Model Relating (Log)Wage to Gender and Education & Experience

    1-34/40 Part 1: Introduction


    Partial Effects
    Coefficients may not tell the story

    Education .05654
    Experience .04045 - 2*.00068*Exp
    FEM -.38922

    1-35/40 Part 1: Introduction


    Effect of Experience = .04045 - 2*.00068*Exp
    Positive from 1 to 30, negative after.

    1-36/40 Part 1: Introduction


    Interaction Effect
    Gender Difference in Partial Effects

    1-37/40 Part 1: Introduction


    Partial Effect of a Year of Education
    E[logWage]/ED = ED + ED*FEM *FEM
    = 0.05458 + 0.02350*FEM
    Note, the effect is positive.
    The effect 43% is larger for women.

    1-38/40 Part 1: Introduction


    Gender Effect Varies by Years of Education
    E[logWage]/FEM = FEM + ED*FEM *ED

    = -0.67961 + 0.0235*ED

    1-39/40 Part 1: Introduction


    Analysts are interested in interaction effects in models.

    1-40/40 Part 1: Introduction

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