Diponegoro University - Dept.

of Economics Econometrics 2

Course Outline: Econometrics 2

Undergraduate course Q1S1 2021–2022

This outline covers topics discussed in the first half of the semester. The outline is tentative.
Instructor reserves the right to make changes. All changes will be announced in class.

General information
Instructor: Dr.rer.pol Alfa Farah
Email: [email protected]
Homepage: sites.google.com/view/alfafarah
Office hours: no regular office hour during the pandemic

Student Assistant:
Bahrul Maarif
Muhammad Hanif Rizki
Yudhea Christian Meliala

Lectures:
Class A, Wed, 13.00–15.30 WIB, code: ceacgeh
Class B, Fri, 07.00–09.30 WIB, code: qvehs3z
Class C, Thurs, 13.00–15.30 WIB, code: ozkpgg2
Class IUP, Fri, 13.00–15.30 WIB, code: 75fy6pm

Tutorials:
All classes, Sat, 08.00–10.00 WIB, code: jgggwbj

Course description
The course emphasizes on the practical application of econometrics. It provides hands-on
experience in econometric analysis designed to help students to acquire the skills necessary
to carry out their own empirical research in economics.

This part of the course focuses on regression analysis with cross section and panel data. Stu-
dents will model simple applications using R statistical software on a variety of datasets pro-
vided with the 6th edition of Introductory Econometrics: A Modern Approach by Wooldridge.

Course objectives
By the end of the quarter, students are expected to

1. have a basic understanding on how to do an econometrics analysis of cross-section/

panel data

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2. be able to use R to conduct econometrics analyses of cross-section/ panel data using

3. be able to interpret and discuss the estimation results
4. be able to report the analysis in an empirical paper

Prerequisites
Mathematics 1 & 2, Statistics 1 & 2 and Econometrics 1.

Reading
1. Wooldridge, J. M. 2016. Introductory Econometrics: A Modern Approach, 6ed. [W]
(Ch. 1, 2, 3, 4, 5, 6, 9, 13, 14)
2. Heiss, Florian. 2020. Using R for Introductory Econometrics, 2ed. [H]
(Ch.1, 2, 3, 4, 6, 7, 8, 9, 13, 14)

Selected examples from Wooldridge (yellow shaded examples are discussed during lectures):

ˆ Basic regression: Example 2.4, 2.7, 2.10, 3.2 , 4.1, 4.3

ˆ Gauss-Markov assumptions: Example 3.2, 2.13 , 3.6 , 8.4, 8.5
ˆ Forms of econometric models: Example 2.10, 3.2, 4.1 , 4.5 , 6.2 , 7.1 , 7.5 , 6.3 ,
7.10 , 6.1 , 7.12 .
ˆ Panel data: Example 13.2 , 13.3, 13.9 , 14.2 , 14.4 and Equation (13.18)

Lecture outline
The course combines lectures and tutorials. Lectures cover econometrics concepts whereas
tutorials demonstrates how to estimate econometrics models using R. Students should join
MSTeams tutorial to attend the tutorials. The tutorials are however not compulsory.

1. Lecture 1 (week 1): Review of multiple regression analysis

Tutorial 1 (week 1): R application (introduction, statistic descriptive, regression)
2. Lecture 2 (week 2): Violation of Gauss-Markov Assumptions
Tutorial 2 (week 2): R application (multicollinearity, heteroscedasticity)
3. Lecture-Tutorial 3 combined (week 3): Some forms of econometric models (logarithmic,
quadratic), their R application and interpretation
4. Tutorial 4 (week 3): R application (binary variables, linear probability model, interac-
tion, beta coefficient)
Lecture 4 (week 4): Interpreting regression output (linear probability model, interac-
tion, beta coefficient)
5. Lecture 5 (week 5): Introduction to Panel data
Tutorial 5 (week 5): R application (pooled, first difference model)

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6. Lecture 6 (week 6): Interpreting panel data regression output

Tutorial 6 (week 6): R application (fixed effects, random effects)
7. Lecture 7 (week 7): Interpreting panel data regression output
Tutorial 7: reserved

See timetable for details.

Software
The course will use R as the main statistical software. Students have to install R and, subse-
quently, RStudio on their computer. R can be downloaded from https://cran.r-project.org
and RStudio from https://rstudio.com/products/rstudio/download/.

Students who never use R are strongly suggested to do the following:

ˆ Watch: https://www.youtube.com/watch?v=eBJ9Yo6flsM
ˆ Read “Introduction to RStudio” by Oscar Torres-Reyna
(https://dss.princeton.edu/training/RStudio101.pdf)

Before the first lecture, students are strongly suggested to read the first chapter of Heiss (in
particular 1.1, 1.2, 1.3, 1.4) and try the written commands.

Data sets
The computer exercises use data sets provided with the 6th edition of Introductory Econo-
metrics: A Modern Approach. The data sets are publicly available. What is exciting for R
users is that there is an R package that contains all the data sets.

The package, {"wooldridge"} or officially entitled “111 Data Sets for Econometrics”, is
written by Justin M. Shea [aut, cre] and Kennth H. Brown [ctb]. Students can install the
package by typing install.packages("wooldridge") in their RStudio console.

Before the first lecture, students are strongly suggested to visit the package’s website
https://justinmshea.github.io/wooldridge/. Tab “Articles” provides examples that is
easily reproducible.

Course assessment
The final grade will be based on your performance in all forms of assessment according to
the following distribution:

ˆ Online quiz 25%, due October 16, 24.00 WIB.

ˆ Group project (term paper and R Script) 25%, due October 23, 24.00 WIB.

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Term paper
Students in groups conduct econometrics analyses using the provided data (see data hand-
book) and report the analysis as an empirical research paper. Only a complete submission
that include both the paper and the R Script will be graded. Details of the term paper and
the data set will be announced in class. Submission via link provided only.

Grading policy
Grades must reflect mastery, not just effort! In order to earn a good grade, students need to
do well during their assignments and exams. Students who do well during assignments and
exams typically read the course outline carefully, go to classes regularly, read the suggested
readings, do the their homework and ask for help.
80.00 - 100.00 A
70.00 - 79.99 B
60.00 - 69.99 C
51.00 - 59.99 D
0.00 - 50.99 E

University Attendance Policy

Students are expected to attend classes regularly. A student is required to attend a minimum
of 75% of the classes in order to sit the final exam.

Study Tips
The readings, homework, assignments can be overwhelming. Here are some tips:

1. Read the course outline and the timetable carefully.

2. Read lecture slides of Econometrics 1 before the start of the course to refresh your
basic knowledge.
3. Try the commands in Heiss (1.1, 1.2, 1.3, 1.4) in advance to get familiar with RStudio.
4. Print the slides and the selected examples (of Wooldridge) before the respective meet-
ing. Printing enables you to makes notes in the slides/examples!
5. Read the slides before the respective meeting!
6. Have your printed slides, your printed examples and pencils ready during the lectures!
7. Share your burden! Create a study group. Distribute topics/chapters to each mem-
ber of the group. Each member is responsible to read (or summarize) their assigned
topics/chapters. Meet regularly to discuss the topics.
8. Do and discuss the homework with your group, even when it is not graded.
9. Ask questions!

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10. Relax! You have the right to study in your own pace!
11. It is okay to get frustrated! Everybody gets frustrated when they study Econometrics!
The good thing about frustration is that it implies that you put you best efforts! When
you do get frustrated, do not push yourself! Instead, stay away for a while but do not
forget to go back!

Last updated: August 23, 2021

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 Lecture, Econometrics 2, Q1S1 2020-2021

Lecture A C B/IUP Topic Reading

Part I: Review of multiple regression analysis
Lec 1 Aug 25 Aug 26 Aug 25 (B) Conducting econometric analysis [W] Ch.1
Aug 26 (IUP) The Gauss-Markov assumptions (cross sections) [W] Ch.2 & 3
The Gauss-Markov assumptions (time series) [W] Ch.11
Drawing statistical inference [W] Ch.4 & 5
Note on normality assumption.
Part II: The Gauss-Markov Assumptions
Lec 2 Sep 1 Sep 2 Sep 3 Statistic descriptive and esimation outputs (Ex. 3.2) [W] Ex. 3.2
Multicollinearity [W] Ch.3 (3-4a)
Heteroscedasticity (Ex.2.13) [W] Ch.8
Endogeneity (Ex. 3.6) [W] Ch.3 (3-3a, 3-3b, 3-3c) Ch.9 (9-1)
Non-Random Sampling [W] Ch.9 (9-5b)
Part III: Some forms of econometric models
Lec 3 (combined Sep 8 Sep 9 Sep 10 Interpreting estimation results:
with tutorial) - Simple model (Ex. 3.2) [W] Ch. 3, Ex. 3.2
- Models with Logarithmic Terms (Ex. 4.1, 4.5) [W] Ch 2 (2.4b) Ch 6 (6.2a)
- Models with Quadratic Terms (Ex.6.2) [W] Ch.6 (6.2b)
Lec 4 Sep 15 Sep 16 Sep 17 Interpreting estimation results (cont.):
- Binary Variables (Ex.7.1, 7.5) [W] Ch.7
- Models with Interaction Terms (Ex. 6.3, 7.10) [W] Ch. 6 (6.2c)
- Beta Coefficient (Ex. 6.1) [W] Ch. 6 (6.1a)
- Linear probability model (Ex. 7.12) [W] Ch. 7 (7-5)
Part IV: Panel data
Lec 5 Sep 22 Sep 23 Sep 24 Pooled Independent Cross Sections across Time [W] 13-1, 13-2
First differenced model [W] 13-3, 13-4, 13-5
Fixed Effects Model [W] 14-1
Random Effects Model [W] (14-2)
Lec 6 Sep 29 Sep 30 Oct 1 Intepreting estimation results (Ex. 13.2, 13.9 and Eq. 13.18)
Lec 7 Oct 6 Oct 7 Oct 8 Intepreting estimation results (Ex. 14.2, 14.4)
 Tutorial, Econometrics 2, Q1S1 2020-2021

Tutorial Date Topic Heiss

Part I: Introducing R for regression [H] Ch. 2, 3, 4
1 Aug 28 Introduction to R
Statistic descriptive
Estimating a simple regression model, [W] Ex.2.4, 2.7, 2.10 Script 2.4, 2.7, 2.10
Estimating a multiple regression model, [W] Ex. 3.2, 4.1, 4.3 Script 3.2, 4.2, 4.1
Part II: The Gauss-Markov Assumptions [H] Ch. 3, 9
2 Sep 4 Testing multicolinearity, [W] Ex.3.2, 8.4, 8.5 Script 3.9 , 8.3, 8.4
Testing heteroscedastisity, [W] Ex. 3.2, 8.4, 8.5 instructor’s script
Remedial measures for heteroscedasticity
Part III: Some forms of econometric models [H] Ch. 3, 9, 6, 7
3 (combined Sep 8 (A), Sep 9 (C), Estimating various forms of econometric models:
with lectures) Sep 10 (B/IUP) - Models with Logarithmic Terms , [W] Ex.2.10, 3.2, 4.1, 4.5 Script 2.10, 3.2, 4.2, instructor’s script
- Models with Quadratic Terms, [W] Ex. 6.2 Script 6.4
4 Sep 11 Estimating various forms of econometric models (cont.) :
- Models with Interaction Terms, [W] Ex. 6.3, 7.10 Script 6.6, instructor’s script
- Beta Coefficient, [W] Ex.6.1 Script 6.2
- Linear probability model, [W] Ex.7.12 instructor’s script
- Binary Variables , [W] Ex.7.1, 7.5 Script 7.1, instructor’s script
Part IV: Panel data [H] Ch. 13, 14
5 Sep 25 Estimating panel data
- Pooled data, [W] Ex.13.2, 13.3 Script 13.1, 13.2
- First differenced model, [W] Eq.(13.18), Ex.13.9 Script 13.6, 13.7
6 Oct 2 Estimating panel data (continued)
- Fixed Effects Model, [W] Ex.14.2 Script 14.1
- Random Effects Model, [W] Ex.14.4 Script (14.2 & 14.3)
7 Oct 9 Reserved