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    Empirical Methods For Microeconomic Applications: William Greene Department of Economics Stern School of Business

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    Eduardo UC
    This document provides an overview of empirical methods for microeconomic applications. It discusses binary choice models, including probit and logit models. It covers topics such as partial effects, predictions, testing restrictions, and panel data models. Modeling commands for probit, logit, bivariate probit, and other models are presented.

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    Empirical Methods For Microeconomic Applications: William Greene Department of Economics Stern School of Business

    Uploaded by

    Eduardo UC
    7 views56 pages
    This document provides an overview of empirical methods for microeconomic applications. It discusses binary choice models, including probit and logit models. It covers topics such as partial effects, predictions, testing restrictions, and panel data models. Modeling commands for probit, logit, bivariate probit, and other models are presented.

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    Original Title

    Lab2-BinaryChoice

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    This document provides an overview of empirical methods for microeconomic applications. It discusses binary choice models, including probit and logit models. It covers topics such as partial effects, predictions, testing restrictions, and panel data models. Modeling commands for probit, logit, bivariate probit, and other models are presented.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    7 views56 pages

    Empirical Methods For Microeconomic Applications: William Greene Department of Economics Stern School of Business

    Uploaded by

    Eduardo UC
    This document provides an overview of empirical methods for microeconomic applications. It discusses binary choice models, including probit and logit models. It covers topics such as partial effects, predictions, testing restrictions, and panel data models. Modeling commands for probit, logit, bivariate probit, and other models are presented.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 56

    Empirical Methods for

    Microeconomic Applications

    William Greene
    Department of Economics
    Stern School of Business
    Lab 2. Binary Choice
    Upload Your Project File
    Model Commands
    Generic form:

    Model name ; Lhs = dependent variable


    ; Rhs = independent variables $

    Almost all models require ;Lhs and ;Rhs.


    Rhs should generally include ONE to request a
    constant term.
    Models have different other required specifications
    Many optional specifications.
    Probit Model Command
    Load healthcare.lpj Command Builder

    Text Editor
    Command Builder

    Go button in
    command builder
    Partial Effects for Interactions

    Prob[ y 1| x] [ 1 x 2 z 3 x 2 4 xz ]
    [ A]
    Partial Effects?
    P
    [ A](1 23 x 4 z )
    x
    P
    [ A](2 4 x )
    z
    Compute without extensive additional computation of
    extra variables, etc.
    Partial Effects
    Build the interactions into the model statement
    PROBIT ; Lhs = Doctor
    ; Rhs = one,age,educ,age^2,age*educ $

    Built in computation for partial effects


    PARTIALS ; Effects:
    Age & Educ = 8(2)20
    ; Plot(ci) $
    Average Partial Effects
    ---------------------------------------------------------------------
    Partial Effects Analysis for Probit Probability Function
    ---------------------------------------------------------------------
    Partial effects on function with respect to AGE
    Partial effects are computed by average over sample observations
    Partial effects for continuous variable by differentiation
    Partial effect is computed as derivative = df(.)/dx
    ---------------------------------------------------------------------
    df/dAGE Partial Standard
    (Delta method) Effect Error |t| 95% Confidence Interval
    ---------------------------------------------------------------------
    Partial effect .00441 .00059 7.47 .00325 .00557
    EDUC = 8.00 .00485 .00101 4.80 .00287 .00683
    EDUC = 10.00 .00463 .00068 6.80 .00329 .00596
    EDUC = 12.00 .00439 .00061 7.18 .00319 .00558
    EDUC = 14.00 .00412 .00091 4.53 .00234 .00591
    EDUC = 16.00 .00384 .00138 2.78 .00113 .00655
    EDUC = 18.00 .00354 .00192 1.84 -.00023 .00731
    EDUC = 20.00 .00322 .00250 1.29 -.00168 .00813
    Useful Plot
    More Elaborate Partial Effects

    PROBIT ; Lhs = Doctor


    ; Rhs = one,age,educ,age^2,age*educ,
    female,female*educ,income $

    PARTIAL ; Effects: income


    @ female = 0,1 ? Do for each subsample
    | educ = 12,16,20 ? Set 3 fixed values
    & age = 20(10)50 ? APE for each setting
    Constructed Partial Effects
    Predictions
    List and keep predictions
    Add ; List ; Prob = PFIT
    to the probit or logit command
    (Tip: Do not use ;LIST with large samples!)
    Sample ; 1-100 $
    PROBIT ; Lhs=doctor ; Rhs=
    ; List ; Prob=Pfit $
    DSTAT ; Rhs = Doctor,PFIT $
    Testing Restrictions
    Testing a Hypothesis LM Test
    Lagrange Multiplier Test
    LM = g( 0 )[Est.Hessian0 ]-1g( 0 )
    0 = MLE with restrictions imposed
    Hessian is computed at 0 .

    PROBIT ; LHS = doctor ; RHS = one,age,educ $


    PROBIT ; LHS = doctor
    ; RHS = one,age,educ,female,married
    ; Start = b,0,0 ; MAXIT = 0 $
    Results of an LM test
    Wald Test

    Note: LM equaled
    485.27.
    Wald Test Using
    Matrix Algebra

    Note: LM equaled 485.27.


    Likelihood
    Ratio Test

    Note: LM equaled 485.27.


    Wald equaled 484.55

    LR = 2[LogL(unrestricted) - Logl(restricted)]
    Using Matrix Algebra
    Namelists with the current sample serve 2 major functions:

    (1) Define lists of variables for model estimation


    (2) Define the columns of matrices built from the data.

    NAMELIST ; X = a list ; Z = a list $

    Set the sample any way you like. Observations are now
    the rows of all matrices. When the sample changes,
    the matrices change.
    Lists may be anything, may contain ONE, may overlap
    (some or all variables) and may contain the same
    variable(s) more than once
    Matrix Functions
    Matrix Product: MATRIX ; XZ = XZ $
    Moments and Inverse MATRIX ; XPX = XX
    ; InvXPX = <XX> $
    Moments with individual specific weights in variable w.
    i wi xixi = X[w]X.
    [i wi xixi ]-1 = <X[w]X>
    Unweighted Sum of Rows in a Matrix
    i xi = 1X
    Column of Sample Means
    (1/n) i xi = 1/n * X1 or MEAN(X)
    (Matrix function. There are over 100 others.)
    Weighted Sum of rows in matrix
    i wi xi = 1[w]X
    LM Test for Normality in Probit
    Testing for normality in the probit model:
    x i RHS variables. y i = LHS variable
    Prob[y i 1 | x i ] (x i ), Normal CDF. (x i ) density
    zi [x i , zi3 , zi4 ],
    zi3 -(1/3)[(x i )2 1], z i4 (1/4){(x i )[3 (x i )2 ]}
    (x i )
    ei y i (x i ), di
    (x i )[1 (x i )]
    Lagrange Multiplier Statistic. ^ = compute at MLE of

    i=1 (eidi ) zi ' i=1 di zi


    n n n
    LM= 2
    i=1

    (e i di )
    zi
    Thanks to Joachim Wilde, Univ. Halle, Germany for suggesting this.
    Normality Test for Probit
    NAMELIST ; XI = One,... $
    CREATE ; yi = the dependent variable $
    PROBIT ; Lhs = yi ; Rhs = Xi ; Prob = Pfi $
    CREATE ; bxi = b'Xi ; fi = N01(bxi) $
    CREATE ; zi3 = -1/2*(bxi^2 - 1) ; zi4 = 1/4*(bxi*(bxi^2+3)) $
    NAMELIST ; Zi = Xi,zi3,zi4 $
    CREATE ; di = fi/sqr(pfi*(1-pfi)) ; ei = yi - pfi
    ; eidi = ei*di ; di2 = di*di $
    MATRIX ; List ; LM = 1'[eidi]Zi * <ZI'[di2]Zi> * Zi'[eidi]1 $
    Endogenous Variable in Probit Model
    PROBIT ; Lhs = y1, y2
    ; Rh1 = rhs for the probit model,y2
    ; Rh2 = exogenous variables for y2 $

    SAMPLE ; All $
    CREATE ; GoodHlth = Hsat > 5 $
    PROBIT ; Lhs = GoodHlth,Hhninc
    ; Rh1 = One,Female,Hhninc
    ; Rh2 = One,Age,Educ $
    Binary Choice Models
    with Panel Data
    Global Setting for Panels

    SETPANEL ; Group = the name of the ID variable


    ; PDS = the name of the groupsize variable to create $

    Subsequent model commands state ;PANEL


    with no other specifications requred to set the panel.
    Some other specifications usually required for the
    specific model e.g., fixed vs. random effects.
    Panel Data
    Unbalanced Panel Data Set

    Examine Distribution of Group Sizes


    Sample ; all$
    Setpanel ; Group = id ; Pds = ti $
    Create ; t = ndx(id,1) $
    Histogram ; if[t=1] ; rhs = ti $
    Group Sizes
    Cluster Correction
    PROBIT ; Lhs = doctor ; Rhs = one,age,female,educ,married,working ; Cluster = ID $
    Fixed Effects Models

    ? Fixed Effects Probit.


    ? Looks like an incidental parameters problem.
    Namelist ; X = age,educ,married $
    Probit ; Lhs = doctor; Rhs = X,one
    ; FEM ; Marginal ; Panel $
    Probit ; Lhs = doctor ; Rhs = X,one
    ; Marginal $
    Computed Fixed Effects Parameters
    Logit Fixed Effects Models
    Conditional and Unconditional FE

    ? Logit, conditional vs. unconditional


    Logit ; Lhs = doctor
    ; Rhs = X ; Panel $ (Conditional)
    Logit ; Lhs = doctor
    ; Rhs = X ; Panel ; Fixed $
    A Hausman Test for Fixed Effects
    Random Effects and
    Random Constant
    Bivariate Probit Model
    Two equation model
    General usage of
    LHS = the set of dependent variables
    RH1 = one set of independent variables
    RH2 = a second set of variables
    Economical use of namelists is useful here
    Namelist ; x1=one,age,female,educ,married,working $
    Namelist ; x2=one,age,female,hhninc,hhkids $
    BivariateProbit ;lhs=doctor,hospital
    ;rh1=x1
    ;rh2=x2;marginal effects $
    BivariateProbit ; lhs=doctor,hospital
    ; rh1=one,age,female,educ,married,working
    ; rh2=one,age,female,hhninc,hhkids
    ; rst = beta1,beta2,beta3,be,bm,bw,
    beta1,beta2,beta3,bi,bk, 0.4 $
    --------+-------------------------------------------------------------
    Variable| Coefficient Standard Error b/St.Er. P[|Z|>z] Mean of X
    --------+-------------------------------------------------------------
    |Index equation for DOCTOR
    Constant| -1.69181*** .08938 -18.928 .0000
    AGE| .01244*** .00167 7.440 .0000 44.3352
    FEMALE| .38543*** .03157 12.209 .0000 .42277
    EDUC| .08144*** .00457 17.834 .0000 10.9409
    MARRIED| .42021*** .03987 10.541 .0000 .84539
    WORKING| .03310 .03910 .847 .3972 .73941
    |Index equation for HOSPITAL
    Constant| -1.69181*** .08938 -18.928 .0000
    AGE| .01244*** .00167 7.440 .0000 44.3352
    FEMALE| .38543*** .03157 12.209 .0000 .42277
    HHNINC| -.98617*** .08917 -11.060 .0000 .34930
    HHKIDS| -.09406** .04600 -2.045 .0409 .45482
    |Disturbance correlation
    RHO(1,2)| .40000 ......(Fixed Parameter)......
    --------+-------------------------------------------------------------
    Endogenous Variable in Probit Model
    Instrumental Variable Probit
    FIML Estimator

    PROBIT ; Lhs = y1, y2


    ; Rh1 = rhs for the probit model,y2
    ; Rh2 = exogenous variables for y2 $
    PROBIT ; Lhs = healthy,income
    ; Rh1 = one,age,educ,female,income
    ; Rh2 = one,age,educ,married $

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