Faculty of Economics http://www.econ.cam.ac.

uk/

R301B ADVANCED ECONOMETRICS II:

CROSS-SECTION & PANEL DATA
COURSE OUTLINE 2024-25

LECTURER: Dr Melvyn Weeks

Dr Melvyn Weeks | Faculty of Economics (cam.ac.uk)

OFFICE HOURS: By appointment. Please email [email protected]

FORMAT OF COURSE:

Teaching Hours Overview:

• 18 hours comprising of Lectures during Lent Term.

• In addition to lectures, there will be 8 hours comprising of 4 x 2-hour Classes during Lent Term and 2 x 2-hour
Revision Class during Easter Term.

COURSE OVERVIEW:

Course Outline:

Topics covered will be taken from: Generalised Method of Moments, random utility models in discrete choice,
heterogeneity and endogeneity in binary choice models, program evaluation and treatment effects, fixed and
random effects estimators for panel data, nonlinear and dynamic panel data models, count data models, Bayesian
methods for latent variables, and machine learning for predictive and causal inference.

We may consider the material in four Parts

• PART I Nonlinear Models for Discrete Data

• PART II Linear Panel Data Models

• PART III Topics in Bayesian Microeconometrics

• PART IV Machine Learning and Nonparametric Estimators

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Course Objectives:

The course focuses on dealing with estimation and inference using both cross-section and panel data.

Specific Topics Covered:

Topic 1: Discrete Choice I: Binary Response Models
Topic 2: Alternative Estimators for Nonlinear Models with Endogeneity
Topic 3: Discrete Choice II: Multinomial Response Models
Topic 4: Discrete Choice III - The Mixed Logit Model
Topic 5: Panel Data I - Linear Unobserved Effects Panel Data Models
Topic 6: Panel Data II - Panel Data Discrete Choice Models
Topic 7: Panel Data III - Large T Panels
Topic 8i: Bayes, Inverse Probability and Conjugate Priors
Topic 8ii: Fundamentals of Bayesian Inference
Topic 8iii: The EM Algorithm and Data Augmentation for Latent Variable Models
Topic 9: Programme Evaluation and Treatment Effects
Topic 10: Machine Learning and Decision Trees
Topic 10b: Machine Learning and Regression Trees and Forests
Topic 10c: Machine Learning for Causal Effects
Topic 11: Count Data Models

Other Topics
Generalised Method of Moments I: Introduction
Generalised Method of Moments II: The Linear Model
Generalised Method of Moments III: Testing
Dynamic Panel Data Models CT: Chapter 22
Willingness To Pay

Lecture Notes:

All lecture notes will be posted on Moodle before each lecture.

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RESOURCES AND READING MATERIALS:

Resource: Description:

Principle Texts Wooldridge, J. (2012) Introductory Econometrics: A Modern Approach, 5th edition.
International Student Edition.

A. C. Cameron and P. K. Trivedi (2005) Microeconometrics: Methods and Applications.

Cambridge University Press

Wooldridge, J. (2010). Econometric Analysis of Cross-Section and Panel Data. MIT.

Econometrics of [*] CHAPTER 15, Multinomial Models in Cameron, C.A. and P.K. Trivedi (2005)
Discrete Choice Microeconometrics: Methods and Applications. Cambridge University Press.

[**] Kenneth, E. Train (2003), Discrete Choice Methods with Simulation, Cambridge University
Press, Cambridge, UK.

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[2] Daganzo, C. (1979), Multinomial Probit: The Theory and its Application to Demand
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[3] Hensher, D. and W. Greene (2001), “The mixed logit model: The state of practice and
warnings for the unwary”, Working Paper, School of Business, The University of Sydney.

[4] Hensher, D. and W. Greene (2003), “The mixed logit model: the state of practice”.
Transportation, 30(2), 133-176.

[5] McFadden, D. (2001), “Economic choices”, American Economic Review 91, 351-378.

[6] McFadden, D. and K. Train (2000), “Mixed MNL models of discrete response”, Journal of
Applied Econometrics 15, 447-470.

[7] McFadden, D., K. Train and W. Tye (1978), “An application of diagnostic tests for the
independence from irrelevant alternatives property
of the multinomial logit model”, Transportation Research Record 637, 39-46.
https://www.vle.cam.ac.uk/pluginfile.php/8013722/mod_page/content/80/Counter%20M320_
3.pdf

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[8] Revelt, D. and K. Train (1998), “Mixed logit with repeated choices”, Review of Economics and
Statistics 80, 647-657.

[9] Train, K. (1999), “Mixed logit models for recreation demand”, in J. Herriges and C. Kling, eds.,
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substitution patterns”, Journal of Econometrics 89, 109-129.

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self and others”, Journal of Political Economy 104, 683-703.

[7] Petrin, A. (2002). “Quantifying the Benefits of New Products: The Case of the Minivan”.
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[8] Goldberg, P.K. (1995). ”Product Differentiation and Oligopoly in International Markets: the
Case of the US Automobile Industry”. Econometrica 63 (July), pp. 891-951.

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industry”. Rand Journal of Economics, Vol. 31, pp. 395-421.

[10] Nevo, A. (2001) ”Measuring Market Power in the Ready-to-Eat Cereal Industry”.
Econometrica 69(2), pp. 307-342.

[11] Reiss, P. and Wolak, F. (2004) ”Structural Econometric Modeling: Rationales and Examples
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[12] Pakes, A. (2003) ”Common Sense and Simplicity in Empirical Industrial Organization”
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Angrist, J. “Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security
Administrative Records”, American Economic Review, June 1990.

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 Faculty of Economics http://www.econ.cam.ac.uk/

[2] Angrist, J. “Using Social Security Data on Military Applicants to Estimate the Effect of Military
Service on Earnings”, Econometrica, March 1998.

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Econometrics 29, 1985, 229-256.

[4] Newey, W. and K. West, “Hypothesis Testing with Efficient Method of Moments Estimation”,
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[5] Wooldridge, Jeffrey. M. 2001. ”Applications of Generalized Method of Moments

Estimation.” Journal of Economic Perspectives, 15(4): 87– 100.

Weak Instruments [1] Bound, J. Jaeger, D. and Baker, R. “Problems with Instrumental Variables Estimation when
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[2] Murray, M.P. (2006) “Avoiding Invalid Instruments and Coping with Weak Instruments”. The
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[3] Newey, W. K. and Windmeijer, F. (2009). Generalized method of moments with many weak
moment conditions. Econometrica, 77(3), 687719.

[4] Stock, J.H. and Yogo, M. (2005). Testing for Weak Instruments in Linear IV Regression.
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[5] Stock, J.H., Wright, J.H. and Yogo, M. (2002). A Survey of Weak Instruments and Weak
Identification in Generalised Method of Moments, Journal of Business and Economic Statistics,
20, 518-529.

Static Panel Data [1] Chamberlain, G. (1984). Panel Data, Handbook of Econometrics, Volume 2, ed. Z. Griliches
Models and M. D. Intriligator. North Holland, 1248-1318.
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Economic Review, XCIII.

Dynamic Panel Data CHAPTER 21 [22.5]. Linear Panel Data Models: Extensions, C.A. and P.K. Trivedi (2005)
Models Microeconometrics: Methods and Applications. Cambridge University Press.

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 Faculty of Economics http://www.econ.cam.ac.uk/

[1] Arellano, M. and Bond, S.R. (1991), Some tests of specification for panel data: Monte Carlo
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[4] Bundell, R.W. and Bond, S.R. (2000), GMM estimation with persistent panel data: an
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[6] Arellano, M. (2003), Panel Data Econometrics, Oxford University Press

[7] Wooldridge, J.M. (2001), Econometric Analysis of Cross Section and Panel Data, MIT

[8] Roodman, J.M. (2006), How To Do Xtabond2, Working Paper Center for Global
Development, No. 103

[9] Judson, R. A. and A. L. Owen (1999), Estimating Dynamic Panel Data Models: A Guide for
Macroeconomists, Economic Letter, vol. 65, pp. 9-15.

[10] S. Bond (2002), Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice,
Cemmap Workin Paper CWP09/02, Institiute for Fiscal Studies.

Programme [1] Heckman, J. and Hotz, V. (1989). Choosing among Alternatives Nonexperimental Methods
Evaluation and for Estimating the Impact of Social Programs, Journal of the American Statistical Association, 84,
Treatment Effects 862-874.

[2] Heckman, J., Ichimura, H. and Todd, P. (1997). Matching as an Econometric Evaluation
Estimator: Evidence from Evaluating a Job Training Programme, The Review of Economic
Studies, 64(4), 605-654.

[3] Heckman, J. Ichimura, H. and Todd, P. (1998). Matching as an Econometric Evaluation

Estimator, The Review of Economic Studies 65(2), 261-294.

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[5] LaLonde, R. (1986). Evaluating the Econometric Evaluations of Training Programs with
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 Faculty of Economics http://www.econ.cam.ac.uk/

[7] Joshua D. Angrist (2001) Estimation of Limited Dependent Variable Models with Dummy
Endogenous Regressors: Simple Strategies for Empirical Practice. Journal of Business &
Economic Statistics, Vol. 19, No.1.

[8] Joshua D. Angrist (2004) Treatment Effect Heterogeneity in Theory and Practice. The
Economic Journal, Vol. 114.

[9] Angrist, J. D. and A. Krueger (1999) Empirical Strategies in Labour Economics. in Handbook of
Labour Economics, vol. 3A.

[10] Heckman, J. J. Tobias and E. Vytlacil (2001) Four Parameters of Interest in the Evaluation of
Social Programs. Southern Economic Journal, vol. 68, pp210-223.

[11] Heckman, J. (2007) Schools, Skills and Synapses. Lecture at Peking University, China.
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[12] Blundell, R.W., and M. Costa Dias, (2002), “Alternative Approaches to Evaluation in
Empirical Microeconomics.” Portuguese Economic Journal, 1, 91-115.
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[13] Bertrand, M. Duflo, E. and Mullainathan, S. (2004). How Much Should We Trust
Differences-in-Differences Estimates?. Quarterly Journal of Economics 119 (1).

[14] Card, D., and A.B. Krueger, (1994). Minimum Wages and Employment: A Case Study of the
FastFood Industry in New Jersey and Pennsylvania. American Economic Review 84.

Binary Choice and [1] Dong, Y. and Lewbel, A. (2012). ‘Simple Estimators for Binary Choice Models with
Endogeneity Endogenous Regressors’. Research Paper. University of California Irvine and Boston College.

[2] Lewbel, A., Dong, Y. and Yang, T. T. (2012). Comparing features of convenient estimators for
binary choice models with endogenous regressors. Canadian Journal of Economics/Revue
Canadienne d’economique, 45(3), 809-829.

[3] Blundell, Richard, Dennis Kristensen, and Rosa L. Matzkin 2013. ”Control Functions and
Simultaneous Equations Methods”, American Economic Review, 103(3), 563-569.

[4] Chesher, Andrew and Adam M. Rosen. 2013. ”What do instrumental variable models deliver
with discrete dependent variables?” American Economic Review, 103(3), 557-562.

[5] Altonji, Joseph G., Todd E. Elder and Christopher R. Taber (2005). Selection on Observed and
Unobserved Variables: Assessing the Effecttiveness of Catholic Schools. Journal of Political
Economy 113(1).

[6] Altonji, Joseph G., Todd, E. Elder and Christopher R. Taber (2002). An Evaluation of
Instrumental Variable Strategies for Estimating the Effects of Catholic Schools. Working Paper
no. 9358 (NBER), Cambridge, MA.

[7] Evans, William N. and Robert M. Schwab (1995). Finishing High School and Starting College:
Do Catholic Schools Make a Diference?. Q.J.E. 110 (November): 941-74.

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 Faculty of Economics http://www.econ.cam.ac.uk/

[8] Altonji, J. G., Elder, T. E. and Taber, C. R. (2005). Selection on observed and unobserved
variables. Assessing the effectiveness of catholic schools. The Journal of Political Economy,
113(1), 151-184. doi:10.1086/426036.

Dynamic Binary [1] Bernard, A.B. and J. B. Jensen (2004). ‘Why Some Firms Export’. The Review of Economics
Choice and Statistics, 86(2), 561-569.

[2] Carrasco, R. (2001). ‘Binary Choice with Binary Endogenous Regressors in Panel Data:
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[3] Chay, K. and D. Hyslop (1998). Identification and Estimation of Dynamic Binary Response
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[4] Drakos, K., and Konstantinou, P. T. (2013). Investment decisions in manufacturing: assessing
the effects of real oil prices and their uncertainty. Journal of Applied Econometrics, 28(1), 151-
165.

[5] Dong, Y. and Lewbel, A. (2012). ‘Simple Estimators for Binary Choice Models with
Endogenous Regressors’. Research Paper. University of California Irvine and Boston College.

[6] Lewbel, A., Dong, Y. and Yang, T. T. (2012). Comparing features of convenient estimators for
binary choice models with endogenous regressors. Canadian Journal of Economics/Revue
Canadienne d’economique, 45(3), 809-829.

[7] Rabe-Hesketh, S. and Skrondal, A. (2013). Avoiding biased versions of Wooldridge’s simple
solution to the initial conditions problem. Economics Letters, 120(2), 346-349.

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probit models with autocorrelated errors’. The Stata Journal 6(2) 256-272.

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Nonlinear Panel Data Models with Unobserved Heterogeneity’. Cenmap Working Paper
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Count Data [*] CHAPTER 20, Models of Count Data in Cameron, C.A. and P.K. Trivedi (2005)
Microeconometrics: Methods and Applications. Cambridge University Press.

[1] Blundell, R., Griffith, R. and Windmeijer, F. (2002), Individual effects and dynamics in count
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[4] Gourieroux, C., A. Monfort, and A. Trignon (1984), “Pseudo-Maximum Likelihood Methods:
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Choice Models Microeconometrics: Methods and Applications. Cambridge University Press.

[1] Albert, J. and S. Chib (1993), “Bayesian analysis of binary and polychotomous response
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[7] McCulloch, R. and P. Rossi (2000), “Bayesian analysis of the multinomial probit model” in R.
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Markov Chain Monte [1] Albert, J., and S. Chib (1993) Bayesian Analysis of Binary and Polychotomous Response Data,
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[9] Tanner, M., and W. Wong (2010) From EM to Data Augmentation: The Emergence of MCMC
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Verlag, 1990.

[2] J. Freidman, T. Hastie, R. Tibshirani. The Elements of Statistical Learning. Springer, 2009.

[3] G. James, D. Witten, T. Hastie, R. Tibshirani. An Introduction to Statistical Learning with

Applications in R. Springer, 2013.

[4] S. Athey, G. Imbens. Recursive partitioning for heterogeneous causal effects Proceedings of
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[6] E. O’Neill, M. Weeks. Causal Tree Estimation of Heterogeneous Household Response to

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[8] S. Athey,G. Imbens Machine Learning Methods Economists Should Know About. Working
Paper, 2019, Graduate School of Business, Stanford University.

[9] S. Athey, S. Wager. Estimation and inference of heterogeneous treatment effects using
random forests. Journal of the American Statistical Association, 2017.

[10] Athey, S., Tibshirani, J. and Wager, S. (2018). Generalized random forests. Annals of
Statistics.

Y. Lin, J. Yongho Random forests and adaptive nearest neighbors Journal of the American
Statistical Association Vol. 101, No. 474 (2006), pp.5

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