EPP 7203 ECONOMETRICS

Course Description:
This is an entry-level graduate econometrics course, focusing mainly on cross-sectional
techniques and to a lesser extent on time-series techniques. It is entry-level in the sense that you
are not presumed to have any prior acquaintance with econometrics (although you are assumed
to have the required statistical and computing background; you are also assumed to have had
coursework in linear algebra and calculus including some optimization). Though entry level, this
is very much a graduate course, which among other things, means that rigor and understanding
of the techniques are very much emphasized as opposed to learning cookbook methods. It
attempts to serve two types of audiences. For those who wish to pursue applied data analysis in
the real world, it presents a wide array of problem instances and tools appropriate for those
instances. It will expose you to a tool, show you why it works (at least in most cases) and ask
you to apply the tool to solve similar problems with new datasets. The course also serves as a
stepping stone for those interested in knowing the field more intimately, which it does by
introducing them to a fair amount of theory and by giving them a tour of a small selection of
classic and contemporary papers written in this area.

Objectives
This course aims to broaden your knowledge and extend your understanding of econometrics. By
the end of the course you should be able to:
a) Make progress with qualitative regressors, dummy variables and the identification and
estimation of simultaneous econometric models;
b) Show how lags and expectations can be incorporated in dynamic models; and
c) Forecast with both econometric and time series models.

Learning Outcomes:
 Demonstrate a broad and deep knowledge of advanced core areas of econometrics;
 Apply core advanced econometric theory and quantitative methods to applied topics;
 Show understanding of advanced analytical methods, both theory- and model based;
 Show understanding of relevant mathematical and statistical techniques;

Intellectual Practical and Transferable Skills

(a) Apply complex ideas to solve problems;
(b) Work with abstract concepts and in a context of generality;
(c) Reason logically and work analytically;
(d) Understand the contexts in which problems are addressed;
(e) Identify appropriate econometric models to analyze problems;
(f) Select and apply appropriate techniques to solve problems;
(g) Justify conclusions using econometric arguments with appropriate rigor;
(h) Use appropriate techniques of policy analysis;
(i) Apply mathematical, statistical and graphical techniques in an appropriate manner; and
(j) Communicate effectively and clearly in written and oral formats.

Teaching and Learning Pattern

This course will be taught for a total of 60 hours [i.e. six (6) contact hours per week]. Teaching
and learning in this course will be through among others, team-teaching; problem-based
approaches; student-centered learning; lectures; in class exercises; own readings; take-home
assignments and group exercises.

Indicative Content
Introduction to Econometrics; Linear algebra; Statistics; Classical Multiple Regression Model:
The multiple regression model; Least squares geometry; Finite sample properties; Inference;
Application: returns to scale in electricity; Further Topics on Classical Regression Model:
Dummy variables; Parameter consistency and structural stability; Application: Solow’s 1957
study of technical change; Model Specification; Application: hedonic prices, wage
discrimination; More General Models and Estimation Frameworks: A small dose of large
sample theory; Classical regression model with large samples; Nonlinear regression; Maximum
likelihood estimation, the trinity; Application: Zellner and Revankar’s study of generalized
production functions; Endogeneity and instrumental variables; Application: returns to schooling;
Generalized Method of Moments; Application: consumption based asset pricing models; Hansen
and Singleton (original article); Data Problems: Generalized least squares; Heteroskedasticity;
Application: credit card expenditures; Autocorrelation; Application: Fama’s test of efficient
market hypothesis; Outlier analysis; Application: statistical outlier analysis in litigation support:
Engler v Winfrey (Basmann’s Paper); Multiple Equation Systems: System of equations and
SUR; Application: estimation of interrelated factor demands; Identification in simultaneous
equation modeling; Estimation in simultaneous equation systems; Application: improving the
efficiency of a queuing system; Dasgupta-Ghosh’s study of Calcutta port (original article); Panel
Data Models: Fixed effects; Random effects; Dynamic panels; Application: growth and
convergence; Discrete Choice and Limited Dependent Variable Models: Binary choice models;
Multinomial choice models; Ordered data and count data; Censoring, truncation and tobit
models; Sample Selection; Application: labor Supply Decisions; Duration models; Application:
labor strikes; An Introduction to Time Series and Dynamic Modeling: Univariate time series:
ARIMA modeling; Application: housing starts; ARCH models; Application: Engle’s study of
UK inflation (original paper); ADL, VAR and causality; Unit roots and cointegration;
Application: demand for money; Application: long-run effects of price promotion; Dekimpe-
Hanssens-Silva-Russo study (original paper).

Assessment Method
The pass mark is 60 percent. Continuous assessment will contribute 40 percent while the final
three-hour examination will account for 60 percent. Below is the distribution of points by mode
of assessment.
Mode Percent
Term Paper 15
Attendance/Participation 10
In class Test 15
Final Examination 60
Total 100

References

Jeffrey Wooldridge (2004) Introductory Econometrics: A Modern Approach (SouthWest College

Publications).
Christian Heij et. al.(2004) Econometric Methods with Applications in Business & Economics
(Oxford University Press).
James Stock and Mark Watson (2003) Introduction to Econometrics 2nd Edition (Addison
Wesley Longman).
Jack Johnston and John DiNardo (1997). Econometric Methods 4th Edition (McGraw-Hill).
Peter Kennedy (2003) A Guide to Econometrics (MIT Press).
Ernst Berndt (1991). The Practice of Econometrics: Classic and Contemporary (Addison
Wesley).
William H. Greene (2007) Econometric Analysis (currently in its 6th edition).
Paul A. Ruud, (2000). An Introduction to Classical Econometric Theory (Oxford).
Jeff Wooldridge (2002) Econometric Analysis of Cross Section and Panel Data (MIT Press).
Russell Davidson and James G. McKinnon (2003). Econometric Theory and Methods (Oxford
University Press).
Fumio Hayashi, (2000). Econometrics (Princeton University Press).
Stock, James H., and Mark W. Watson, Introduction to Econometrics, 2nd Edition, Pearson,
2007.
Wooldridge, Jeffrey M., Introductory Econometrics: A Modern Approach, 4th Edition,
Thomson, 2009; 3rd edition is also acceptable.
Kennedy, Peter, A Guide to Econometrics, 6th edition, Blackwell, 2008.
Johnston, Jack, and John DiNardo, Econometric Methods, 4th Edition, McGraw-Hill, 1997.

Online Resources
These days, one can learn a lot in almost any field from surfing the web; econometrics is no
exception. You can download great set of lecture notes written by noted econometricians and
find out what is being taught at other prestigious graduate programs. Professor Bruce Hansen (U
Wisconsin Madison) has a nice set of lecture notes at
http://www.ssc.wisc.edu/~bhansen/econometrics/ while Professor Herman Bierens of Penn State
has another great set of notes on various topics at
http://econ.la.psu.edu/~hbierens/LECNOTES.HTM

Software: The course places heavy emphasis on using software to analyze data, so students need
to get up to speed with this aspect of the course real soon. There is no rigidity on your using a
particular software; you can use whatever works best for you. The following software are
available at FEMA: STATA, EVIEWS and SPSS. There are several free alternatives to STATA
that are downloadable from the net. There include: EALIMDEP, written by Professor William
Greene (NYU), the author of “Econometric Analysis” is the baby version of the full-blown
package LIMDEP and is limited in the sense that you cannot estimate more than 15 parameters
in a model and data sets have to be relatively small (but still large enough for us). Here is the url
for a page that has some relevant information on downloading and manuals:
http://www.iona.edu/faculty/rjantzen/eco310/eco310ealimdep.htm. Another free software is
EASYREG written by Professor Herman Bierens of Penn State University. This one does not
have the programming flexibilities of EALIMDEP, but it has no limitations on model size (to be
more accurate, it does but there is little chance that you will need to exceed those constraints). It
has many canned packages that the former does not (particularly in Time Series analysis). Go to
http://econ.la.psu.edu/~hbierens/EASYREG.HTM for downloading and additional information.
R, which is a clone of S/SPLUS, is also a terrific piece of software with great graphics and
programming options. To download a free copy, go to: http://cran.r-project.org/. R like STATA,
is very much a live software in the sense, that people are all the time contributing their programs
for free usage.