ECO 5347
Graduate Econometrics
Fall 2011
Faculty
Office
Office Phone
Office Hours
Prerequisites
Jim West, W. H. Smith Professor of Economics
Hankamer 345
710-6126
MO, TU, WE 10-12 and by appointment
ECO 4347 or equivalent
Introduction
The field of econometrics can be described as a tight integration of the disciplines of economic
theory, mathematics, and statistics. It is the extremely useful and marketable skill though which
applied economists earn a living, whether that be forecasting sales for a firm, forecasting the
growth rate of GDP, or testing interesting hypotheses. Through the use of modern software and
the explosion of data available on the web, it is extremely easy to download a data set and fit a
line to it. The art of good econometrics is in understanding both the power and limitations of
econometric models and in their careful interpretation. Consequently, this course is both a
course in careful econometric theory and in the use of a modern econometric software package,
STATA.
We begin with a review of basic statistical theory, building up to single variable regression
equations under ideal conditions. Since conditions in the real world are almost never ideal, we
study regression when the ideal conditions are not met
Course Learning Objectives: After successfully completing ECO 5347, you will be able to
1. Identify common statistical distributions.
2. Understand hypothesis testing as measuring the observed degree of divergence from the
value you expect to find.
3. Write STATA programs.
4. Understand the full ideal conditions of OLS regression, and the properties of OLS
estimators when one or more conditions are violated.
5. Estimate logit, probit, and tobit models and understand when they are more appropriate
than OLS.
6. Estimate fixed effects and random effects models and understand when each is more
desirable to use.
Administration
Required Course Materials:
Kmenta, Jan, Elements of Econometrics, 1986, Second Edition, McMillan
Baum, Christopher F., An Introduction to Modern Econometrics Using STATA, 2006, STATA
Press
Journal Articles: All but one of the following journal articles are available at my personal web
site, www.econjimwest.com . I will send the NBER working paper.
Does Drinking Impair College Performance? Evidence from a Regression Discontinuity
Approach, Carrell, Scott E., Mark Hoekstra, and James E. West, Journal of Public Economics,
2011, 95(1-2), pp 54-62
Peer Effects in Academic Cheating, Carrell, Scott E., Frederick V. Malmstrom, and James E.
West, Journal of Human Resources, 2008, 43(1), pp 173-207
Does Professor Quality Matter? Evidence from Random Assignment of Students to Professors,
Carrell, Scott E. and James E. West, NBER Working Paper 14081, 2008
Does Professor Quality Matter? Evidence from Random Assignment of Students to Professors,
Carrell, Scott E. and James E. West, Journal of Political Economy, 2010, 118(3), pp 409-432
Software: STATA/SE version 11 is available on the Hankamer School of Business server
(H:\stata11\statase.exe), which you may use to complete all empirical assignments in this course.
However, while you are a student, you have the opportunity to purchase your own copy of
STATA at a sharply reduced price. If this is of interest to you, please contact me and I will set
up a “STATA Grad Plan” which will allow you to purchase STATA at a student price.
Course Grading: The grade that you earn in the course will be based on your performance in
each of the following categories shown weighted by the appropriate percentage:
Assessment
Homework Assignments
Writing Assignments
Midterm Exam
Final Exam
Percentage
20
20
20
40
Homework Assignments: We will have weekly homework assignments due on Wednesday.
These will be a combination of theoretical exercises and brief STATA-based assignments.
Writing Assignments: For two of the journal articles covered in class, you will write a brief
review of the econometric techniques used. You will explain what was to be tested, how the
techniques used attempted to accomplish this, and other techniques that could or should have
been used.
Midterm Exam: The midterm exam will be almost exclusively on theoretical content covered in
the first half of the course.
Final Exam: The final exam will be held Tuesday, December 13 from 9-11am and will be
cumulative. Since the final exam is your evidence of having mastered material covered in the
course, failing the final exam will result in failing the course.
Late Work: Assignments are due at the beginning of class. If you will be absent, you must
make arrangements to turn in your assignment at or before this time (note: This does not apply
for unexpected illnesses, etc.). The clock continues through weekends and holidays. Late
assignments will be penalized 1 letter grade per day late.
Attendance Policy: The Hankamer School of Business Attendance Policy states that you must
attend a minimum of 75% of course lessons or will receive a final grade of F. A link to the
policy and a more complete explanation of it is here.
http://www.baylor.edu/business/economics/index.php?id=84087
2
Lesson
Topic
Aug 22
Aug 24
Introduction
Inference
Sampling Distributions
Probability and Distributions
Sampling Distributions
Tests of Hypotheses
Estimation
Working with data in STATA
Simple OLS and Gauss-Markov
Aug 29
Aug 31
Sept 7
Sept 12
Sept 14
Sept 19
Sept 21
Sept 26
Sept 28
Oct 3
Oct 5
Oct 10
Oct 12
Oct 17
Oct 19
Oct 24
Oct 26
Oct 31
Nov 2
Distribution of Estimators
Hypothesis Testing
Regression Output
Hypothesis Testing
Review
Assigned Reading
Major
Assignments
Kmenta 1
Kmenta 2
Kmenta 3
Kmenta 4
Kmenta 5
Kmenta 6
Baum 2
Kmenta 7.1 – 7.3
Baum 4.1 – 4.2
Kmenta pp 225-243
Kmenta pp 243-254
Baum 4.3-4.6
Midterm Exam
Review Midterm Exam
Non-normality
Heteroskedasticity - Theory
Heteroskedsaticity - Practice
Nov 7
Autocorrelation
Moving Average
Multiple Regression
Hypothesis Testing
Multicollinearity
Specification Errors
Binary Regressors
Nov 9
Nonlinear Models
Nov 14
Nov 16
Qualitative Dependent
Variables
Limited Dependent Variables
Nov 21
Simultaneity
Nov 28
Panel Data Methods
Nov 30
Panel Data Continued
Dec 5
Review
Kmenta 8.1
Kmenta pp 269-285
Kmenta pp 285-298
Baum 6.1 – 6.1.3
Kmenta pp 298-320
Kmenta pp 320-334
Kmenta pp 392-412
Kmenta pp 412-430
Kmenta 10.3
Kmenta 10.4
Kmenta 11.1
Drinking
Kmenta 11.3
Writing
Assignment 1 due
Kmenta 11.5
Baum 10.1 – 10.2
Kmenta 11.6
Baum 10.3
Kmenta 13.1
Cheating
Handout
Baum 9.1
Professor Quality
NBER & QJE
Writing
Assignment 2 due
Final Exam
9-11am
Dec 13
3