Economics 105
Statistics
Mark C. Foley
Jan - May 2005
Modeling Presentations
The goal of this group project is to develop a regression model to answer one of the research
questions below. You will not be estimating the regression. This is a modeling exercise. You
should use economic theory, peer-reviewed literature, and your own intuition and knowledge to
build a well-specified econometric model of the following form
(1)
Yi = β 0 + β 1 X 1i + β 2 X 2i + ... + β K X Ki + ε i
where Y is the dependent variable, whose variation you are trying to explain with the independent
(explanatory) variables, X 1 , X 2 ,..., X K , and ε represents random error. The subscript i indexes
observations on the unit of analysis, which can be individuals, states, cities, countries, or firms
(called cross-sectional data), depending on the research question, or it could index a time period
such as months, quarters, or years if the research question is estimating a relationship over time
(called time-series data).
Note that the generic model above does not specify the full number of explanatory variables (the
X’s); it uses K to indicate the last explanatory variable. That is what you are to determine for
your chosen research question. In other words, you decide how many, and which, explanatory
variables to include.
The model is a multiple regression. Typically, there is one “variable of interest” in a research
paper. A simple regression is not adequate to capture the effect of that “variable of interest” on
the outcome since it, by virtue of having only 1 explanatory variable, does not control for other
factors which influence the dependent variable. In other words, a simple regression does not
impose the idea of ceteris paribus. A multiple regression model does. You are interested in the
effect of one variable, the “variable of interest,” on the dependent variable, holding all other
relevant factors constant. In particular, you, as the researcher, are interested in the sign,
magnitude, statistical significance, and economic significance of the estimated coefficient on the
variable of interest, but you can’t address these without actually estimating the model.
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Requirements
The assignment is to give a 13-minute oral presentation using Powerpoint in which you present
and justify an econometric model to answer your research question. There are 8 groups and 4
topics. I’ve allocated two class periods to the presentations and discussion, so there will be 4
presentations per day, and groups with the same topic will present on the same day. The nonpresenting groups will vote on the “winner”, i.e., the group that they feel had the best
presentation and model. The four winning groups will receive a grade bonus. In addition,
groups must ask at least one question of the presenters according to the following: group 1 asks
8, 2 asks 7, 3 asks 6, 4 asks 5, 5 asks 1, 6 asks 2, 7 asks 3, and 8 asks 4. You can decide before
class who will ask a question. The quality of the questions will factor into your group’s grade.
One, two, three, or all group members may participate in the presentation. All group members
should participate in developing the content for the slides. There will be one grade for the whole
group. Please bring a printout of your slides (printed two per page, front and back) to class on
the day of the presentation, and given it to me before you start. The grade for the assignment
will be based on the clarity, content, and correctness of the presentation and the slides.
Research Questions
You will be assigned to a group and one of these research questions.
(A)
(B)
(C)
(D)
What is the effect of more police on crime?
Does smaller class size lead to better student performance?
What is the effect of
on child mortality?
What is the effect of children on a female labor market outcome?
I. Motivation (1-2 slides)
Introduce and motivate the topic by stating the specific research question and why it is
important. Incorporate “big picture” stylized facts or statistics to help place your study in
context and provide motivation for asking the research question. For example, if you are
modeling the effect of class size on student performance, it would be useful to find data on the
average class size and how it has been changing over time. Or if you were looking at the effect
of welfare on employment, for example, it would be useful for the reader to know the total
amount of money the government spends on welfare (last year, in an average year, or for some
reasonable and relevant time frame) and what percent of the budget that represents. Additional
motivation can be provided by discussing the public policy implications of having accurate
answers to the question.
II. Literature Review (2-3 slides)
Have other people studied this issue or one related to it (in particular, search the peer-reviewed
literature with broad enough key words to find appropriate studies), and what conclusions did
they reach? Be sure to cite all authors of a publication, not just the lead author. It is not
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sufficient to read only the abstract and cite the whole article. You should have 4 – 8 peerreviewed articles in this section.
Create a table which notes the following for each paper:
1. Author(s), year of publication, and journal (see list below for abbreviations of main
journals)
2. Data used (including sample size and description of the sample group)
3. Time period – what year is outcome measured, what year are key explanatory variables
measured.
4. Definition of outcome variable
5. Methodology (OLS, GLS, 2SLS, IV, probit, logit, etc.) I realize that you only know
OLS.
6. List of independent variables included in the regressions
7. Coefficient estimate & standard error or t-stat for the variable of interest
See pages 1845 - 1849 and 1858 – 1862 and 1864 - 1868 of Haveman and Wolfe (1995), “The
Determinants of Children’s Attainments,” Journal of Economic Literature, vol. 33, pp. 1829 –
1878. There is a copy of this paper in the P: space you use for lab.
III. Model Development (about 3 slides)
Carefully develop the theory that you are testing in the context of a linear regression model as
given in equation (1). In this section, be sure to:
1. Clearly explain which variables are the independent variables and which is the dependent
variable.
2. Justify why each variable is included, and indicate its expected sign (positive, negative,
or indeterminate – two competing effects)
3. Define the units of all variables.
4. Note any potentially endogenous explanatory variables and explain why they might be
endogenous.
You will find several journal articles on your topic, each with different model specifications.
Your final theoretical model should be a combination of these, plus your own ideas. It’s okay to
follow closely a model in one of the papers (they don’t often state explicitly why each variable is
included), but you should argue why the variables included in other papers do not belong in your
study. Or perhaps you think the previous research has left out an important variable; if so, argue
for its inclusion. Do not just state that you think “variable X” belongs in the model. Tell me
why.
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The following are among the higher quality journals in economics (typical abbreviation):
American Economic Review (AER – generally regarded as the top journal; rest of list is not in rank order)
Brookings Papers on Economic Activity (BPEA)
Brookings Papers on Economic Activity: Microeconomics
European Economic Review (EER)
Journal of Applied Econometrics (JAE)
Journal of Business and Economic Statistics (JBES)
Journal of Economic History (JEH)
Journal of Health Economics (JHE)
Journal of Human Resources (JHR)
Journal of International Economics (JIE)
Journal of Labor Economics (JoLE)
Journal of Law and Economics (JLawE)
Journal of Money, Credit, and Banking (JMCB)
Journal of Political Economy (JPE)
Journal of Sports Economics (JSportE)
Quarterly Journal of Economics (QJE)
Review of Economic Studies (REStud)
Review of Economics and Statistics (REStat)
Journal of Economic Perspectives (JEP)
Journal of Economic Literature (JEL)
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