Econometrics III – Spring 2007

 

The British, he thought, must be gluttons for satire: even the weather forecast seemed to be some kind of spoof, predicting every possible combination of weather for the next twenty-four hours without actually committing itself to anything specific.

From Changing Places (1975), a novel by David Lodge

The thought is from Morris Zapp, an English professor who went to the UK

Sometimes econometrics reminds me of such weather forecast

 

Please report to byront at u.washington.edu for any typo, blunder or nonsense.

 

OFFICE HOURS: Tuesdays 3:00-4:00 and Fridays 12:30-1:30

VENUE: the Small Conference Room in the Department of Economics Main Office, not my office (it is too small).

EMAIL: byront at u.washington.edu

Since office hours are quite scarce, you are encouraged to send me emails.  I check my email account regularly from 9:00 am to 1:00 am every day. 

 

Things I Say

Topic 9 (30th Mar) – Introduction to Asymptotic Theory

Topic 10 (6th Apr) – Instrumental Variables and Two-Stage Least Squares

Fill-in Lecture (10th Apr) – Applications of Instrumental Variables in Labor Economics

Suggested Readings – Below is the list of articles that I will teach in the fill-in lecture.  Though 1) you are NOT expected to replicate any of them in the mega homework, and 2) details of the papers will NOT appear in the exam, if you study these articles seriously you will have a much deeper understanding of the IV as a tool (Or, to put it more selfishly, I want to teach them and have a better understanding of the econometrics of IV estimation myself).  All articles are short, influential, and accessible to anyone who has some knowledge of microeconomics and has taken ECON581.

 

1. Joshua D. Angrist and Alan B. Krueger: “Does Compulsory School Attendance Affect Schooling and Earnings?” (Quarterly Journal of Economics, Vol. 106, No. 4 (Nov., 1991), pp. 979-1014)

2. Orley Ashenfelter and Alan Krueger: “Estimates of the Economic Return to Schooling from a New Sample of Twins” (American Economic Review, Vol. 84, No. 5. (Dec., 1994), pp. 1157-1173)

3. John Bound, David A. Jaeger and Regina M. Baker: “Problems with Instrumental Variables Estimation When the Correlation Between the Instruments and the Endogenous Explanatory Variable is Weak” (Journal of the American Statistical Association, Vo. 90, No. 430. (Jun., 1995), pp. 443-450)

4. Stephen G. Bronars and Jeff Grogger: “The Economic Consequences of Unwed Motherhood: Using Twin Births as a Natural Experiment” (American Economic Review, Vol. 84, No. 5. (Dec., 1994), pp. 1141-1156)

5. William N. Evans and Jeanne S. Ringel: “Can Higher Cigarette Taxes Improve Birth Outcomes?” (Journal of Public Economics, Vol. 72, Issue 1 (Apr., 1999), pp. 135-154)

6. Steven D. Levitt: “Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime” (American Economic Review, Vol. 87, No. 3. (Jun., 1997), pp. 270-290)

7. Steven D. Levitt: “Using Electoral Cycles in Police Hiring to Estimate the Effects of Police on Crime: Reply” (American Economic Review, Vol. 92, No. 4. (Sep., 2002), pp. 1244-1250)

8. Justin McCrary: “Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime: Comment” (American Economic Review, Vol. 92, No. 4. (Sep., 2002), pp. 1236-1243)

 

Topic 11 (13th Apr) – The Hausman Test and Measurement Error

Topic 12 (20th Apr) – Simultaneous-Equations Model

23rd Apr – Review Session 1

Topic 14 (27th Apr) – Simultaneous-Equations Model Example

Edward E. Leamer: “Is it a Demand Curve, Or Is It A Supply Curve? Partial Identification through Inequality Constraints” (Review of Economics and Statistics, Vol. 63, No. 3. (Aug., 1981), pp. 319-327)

Topic 15 (4th May) – Maximum Likelihood Estimation (No handout)

Topic 16 (11th May) – GMM

Topic 17 (29th May) – Time Series (Dynamic Regression Models, AR, MA, and ARMA Models)

 

Things I Grade

Homework 1 (Due 6th Apr) – Introduction to Asymptotic Theory          Suggested Solution   hw1.m

Homework 2 (Due 13th Apr) – Instrumental Variables and Two-Stage Least Squares     Suggested Solution    hw2.m

Homework 3 (Due 20th Apr) – Measurement Error       Suggested Solution    hw3.m

Mega Homework 1 (Due 30th Apr)

 

Evaluating the Cost of Conscription in the Netherlands by Guido Imbens; Wilbert van der Klaauw (Journal of Business & Economic Statistics, Vol. 13, No.2, JBES Symposium on Program and Policy Evaluation. (Apr., 1995), pp. 207-215.)  Data and description in a zipped file

Democratization or Diversion? The Effect of Community Colleges on Educational Attainment by Cecilia Elena Rouse (Journal of Business & Economic Statistics, Vol. 13, No. 2, JBES Symposium on Program and Policy Evaluation. (Apr., 1995), pp. 217-224.)  Data and description in a zipped file

Unanticipated Money Growth and Unemployment in the United States by Robert J. Barro (American Economic Review, Vol. 67, No. 2. (Mar., 1977), pp. 101-115.)

 

Homework 4 (Due 4th May) – Simultaneous Equations Model   Suggested Solution

Homework 5 (Due 11th May) – Maximum Likelihood Estimation           Suggested Solution

 

Midterm Questions and Suggested Answers

 

Homework 6 (Due 18th May) – GMM Suggested Solution

Mega Homework 2 (Due 1st June) – Time Series Exercises       Suggested Solution

References for the Questions:

  1. (DM) Econometric Theory and Methods, by Russell Davidson and James G. MacKinnon, Oxford University Press, 2004.
  2. (Greene) Econometric Analysis, Fourth Edition, by William Greene, Prentice Hall, 2000.
  3. (Hamilton) Time Series Analysis, by James D. Hamilton, Princeton University Press, 1994.
  4. (Nelson) Applied Time Series Analysis for Managerial Forecasting, by Charles R. Nelson, Holden-Day, Inc, 1973

 

Final Questions and Suggested Answers