Economics 753: Applied Econometrics
Fall 2010
Tuesday-Thursday 11:00 am – 12:30 pm
Chenoweth 113
http://courses.umass.edu/econ753
http://courses.umass.edu/econ753/econ753-2010.pdf
Michael Ash, 814 Thompson, 545-6329, mash@econs.umass.edu
Office Hours: Monday 10-11:40; and Thursday 9:30 - 11
Robert Pollin, 916 Thompson, 313 Gordon, 577-0819, pollin@econs.umass.edu
Office Hours: 1 – 2:30 pm Tuesday/Thursday and by appt. Make sure to check whether I am in
Thompson or Gordon Hall (usually in Gordon)
Ivan Petkov petkov33@gmail.com, Office hours
COURSE SYLLABUS
“There is no royal road to science, and only those do not dread the fatiguing climb of its steep paths
have a chance of gaining its luminous summits.” --Karl Marx
The purpose of this course is to help you become comfortable and creative as quantitative
economics researchers and modelers. We will therefore introduce a series of econometric techniques
and models by observing life in the trenches, i.e., working through how practitioners have approached
econometric problems and built models as a vehicle for addressing substantive questions. We will also
put lots of stress on being able to communicate econometric results--and also descriptive data--in ways
that are illuminating and persuasive as well as rigorous. But we will also ask the question: what does it
mean to be rigorous with econometrics and with statistics in general? Indeed, early in the course, we
will even address so basic a methodological question as that raised by John Maynard Keynes himself in
the infancy of econometrics--whether the entire enterprise was worth pursuing. Finally, in the course of
your studying and then doing real-world econometrics, we aim to get you to become comfortable, and
perhaps even proficient, in least one major statistical software package and with manipulating data sets.
TEXTBOOKS AND READINGS
The two textbooks for the course are The Practice of Econometrics by Ernest M. Berndt and
Introduction to Econometrics by James Stock and Mark Watson. They are available at Amherst
Bookstore. The Berndt book includes a data disk that we will use on a regular basis. We will also
draw on some of the unpublished revised chapters of Berndt with new co-author Showalter, which
were sent to us by Professor Berndt.
As an additional reference, we recommend A Guide to Econometrics by Peter Kennedy, also
available at Amherst Bookstore. You may also want to consult Econometric Methods (Johnson and
DiNardo), Econometric Analysis (Greene), or your preferred graduate econometric text.
As you will see from the syllabus, we also assign readings from the literature. Almost all are
linked on the syllabus. Please bring the current readings, including textbooks, to class.
REQUIREMENTS
There are two sets of requirements for the course:
1. Regular exercises and problem sets. We will assign six problem sets. You must complete
assignments 1, 5, and 6, and you can choose to complete any two of assignments 2, 3, and 4,
i.e., you must complete a total of five assignments. We will not assign any exercise in the
first week. Among other things, you will be busy getting familiar with the software options.
After the first week, we will assign exercises every two weeks up to the last week of the
course. The five exercises you turn in will collectively count for 50 percent of your final
grade.
2. Term paper. The term paper assignment can be in one of two forms: a replication of one
empirical econometric paper that interests you, or an original piece of econometric research.
Given other demands over the course of the semester, we strongly recommend that you opt
for the replication option, which should generally be less demanding than coming up with,
estimating, and writing an original research paper. At the same time, a replication can be a
very illuminating experience, especially, of course, if you choose a paper that really interests
you. Having said that, we will not stop anyone who is just burning with an original idea to
get it down on paper. The term paper will count for the other 50 percent of the grade. In
addition, some of the homework assignments will involve providing us with preliminary
materials and updates on the term paper. Finally, we will also require that all students make
oral presentations of their term paper on the last week of class. We emphasize now, and will
continue to do so during the term, the need to work steadily throughout the semester on this
project.
COMPUTER/DATA/SOFTWARE SUPPORT
At the beginning of the term, we will conduct two lab sessions to assist people in getting
comfortable working with data and the Stata statistical application. The teaching assistant for the
course will lead these lab sessions and will also hold regular office hours throughout the course to
assist people further with their data and software needs and concerns.
Later in the course, we will hold additional lab sessions to familiarize you with the use of two
other econometric software programs, EViews and R. These will be optional. You are required to
learn Stata, but we think you will also benefit from learning Eviews and R.
COURSE STRUCTURE
I. Methodological Issues and Descriptive Statistics (3 classes)
Methodology
J.M. Keynes, “Professor Tinbergen's Method,” Economic Journal, September 1939,
http://www.jstor.org/stable/2224838. The Keynes piece is also reprinted in Keynes's
collected works, Volume 14, pp. 306-317. Volume 14 of the collected works also contains
other, more informal (and thus, in some ways, even more illuminating) writings by
Keynes on his critique of Tinbergen.
Jan Tinbergen, “On a Method of Statistical Business-Cycle Research. A Reply.” Economic
Journal, March 1940, http://www.jstor.org/stable/2225763 .
Lawrence H. Summers, “The Scientific Illusion in Empirical Macroeconomics,” Scandanavian
Journal of Economics, 1991, http://www.jstor.org/stable/3440321.
Deirdre N. McCloskey and Stephen T. Ziliak, “The Standard Error of Regressions,” Journal of
Economic Literature, March 1996, http://www.jstor.org/stable/2729411.
Wassily Leontief, “Academic Economics,” Science, July 9, 1982, pp. 106-07,
http://www.jstor.org/stable/1689696.
Syllabus for Economics 753: Applied Econometrics
Profs. Michael Ash and Robert Pollin
Fall 2010
Page 3
Descriptive Statistics
Robert Pollin, Jeanette Wicks-Lim and Heidi Garrett-Peltier, Green Prosperity: How Clean
Energy Policies Fight Poverty and Raise Living Standards in the United States,
http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/green_economics/green_prosperi
ty/Green_Prosperity.pdf
Robert Pollin, “The Landscape of Global Austerity,” Chapter 5 of Contours of Descent (2003)
http://books.google.com/books?id=vp27fzKsuyoC.
Michael Ash and Jean Ann Seago, “The Effect of Registered Nurses' Unions on Heart Attack
Mortality?” Industrial and Labor Relations Review 57(3): 422-442,
http://ideas.repec.org/a/ilr/articl/v57y2004i3p422-442.html.
Michael Ash and James K. Boyce, “The Toxic 100: Top Corporate Air Polluters in the United
States,” http://www.peri.umass.edu/toxic100/.
Edward R. Tufte. The Visual Display of Quantitative Information, Chapter 1: “Graphical
Excellence.” Cheshire, Connecticut: Graphics Press, 1983.
II. Critical Replication (1 Class)
Andong Zhu, Michael Ash, and Robert Pollin, “Stock Market Liquidity and Economic Growth: A
Critical Appraisal of the Levine-Zervos Model,” International Review of Applied
Economics, January 2004, http://www.umass.edu/peri/pdfs/WP47.pdf
Hoxby, Caroline M. “Does Competition among Public Schools Benefit Students and Taxpayers?”
American Economic Review, 90(5), 2000, http://www.jstor.org/pss/2677848.
Rothstein, Jesse, “Does Competition Among Public Schools Benefit Students and Taxpayers? A
Comment on Hoxby (2000),” NBER Working Paper No. 11215, March 2005.
http://www.nber.org/papers/w11215
Hoxby, Caroline M. “Competition Among Public Schools: A Reply to Rothstein (2004),” NBER
Working Paper No. 11216, March 2005. http://www.nber.org/papers/w11216 .
King, Gary. “Publication, Publication,” PS: Political Science and Politics, Vol. XXXIX, No. 1
(January, 2006), 119-125, http://gking.harvard.edu/files/abs/paperspub-abs.shtml.
Francisco Rodriguez and Dani Rodrik. Trade Policy and Economic Growth: A Skeptic's Guide to the
Cross-National Evidence, in Ben S. Bernanke and Kenneth Rogoff, editors, NBER
Macroeconomics Annual 2000, Volume 15. MIT Press. January 2001.
http://www.nber.org/chapters/c11058
Angus Deaton and Darren Lubotsky, “Mortality, Inequality, and Race in American Cities and
States,” Social Science and Medicine, 2002
Michael Ash and Dean Robinson Inequality, Race, and Mortality in U.S. Cities: A Political and
Econometric Review of Deaton & Lubotsky,” SSM 68(11) June 2009 1909–1913.
Angus Deaton and Darren Lubotsky, “Income Inequality and Mortality in U.S. Cities: Weighing the
Evidence. A response to Ash and Robinson,” SSM, 68(11) June 2009, Pages 1914-1917.
The last three listed papers are available at:
http://www.sciencedirect.com/science/article/B6VBF-4W09CJ31/2/8df7f8d458a15ac79450062ede7a449d
Syllabus for Economics 753: Applied Econometrics
Profs. Michael Ash and Robert Pollin
Fall 2010
Page 4
III. Multiple Regression in Price Index Construction. (3 Classes)
Berndt, Ch. 4
Stock and Watson, Chs. 4 and 5, as needed.
Dean Baker, Getting Prices Right, passim, http://books.google.com/books?id=pI1JdYWSHh0C.
Charles Schultz and Christopher Mackie, eds., At What Price? Conceptualizing and Measuring
Cost of Living and Price Indexes, passim, http://stills.nap.edu/books/0309074428/html/
David S. Johnson, Stephen B. Reed, and Kenneth J. Stewart, “Price Measurement in the United
States: A Decade after the Boskin Commission,” Monthly Labor Review, May 2006,
http://www.bls.gov/opub/mlr/2006/05/art2full.pdf
Marshall Reinsdorf and Jack Triplett, “A Review of Reviews: Ninety Years of Professional
Thinking about the Consumer Price Index, 2008, http://www.nber.org/chapters/c5068.pdf
See also Journal of Economic Perspectives, Symposium, Winter 1998,
http://www.jstor.org/stable/i345523 .
IV. Econometric Issues in Labor Economics (3 Classes)
Berndt, Ch. 5.
Stock and Watson, Ch. 6.
John DiNardo and Jorn-Steffen Pischke. “The Returns to Computer Use Revisited: Have Pencils
Changed the Wage Structure Too?” Quarterly Journal of Economics, 112, pages 291303, 1997, http://www.jstor.org/stable/2951283.
David Card and Alan B. Krueger. Chapter 2, "Employer Responses to the Minimum Wage:
Evidence from the Fast-Food Industry." Myth and Measurement: The New Economics of
the Minimum Wage. Princeton University Press, 1995, http://www.jstor.org/stable/2118030.
Nada Eissa and Jeffrey B. Liebman. “Labor Supply Response to the Earned Income Tax Credit.”
Quarterly Journal of Economics, 111(2), pages 605-37. May 1996,
http://www.jstor.org/stable/2946689.
Brent R. Moulton. “An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables
on Micro Units.” The Review of Economics and Statistics, 72(2), pages 334-338, May
1990, http://www.jstor.org/stable/2109724.
V. Limited and Skewed Dependent Variable Models: Health Care, Pollution and Mortgages
(1.5 Classes)
Berndt and Showalter, Draft Chapter 7.
Stock and Watson, Chapter 9.
Michael Ash and T. Robert Fetter, “Who Lives on the Wrong Side of the Environmental Tracks?
Evidence from the EPA’s Risk-Screening Environmental Indicators Model,” Social
Science Quarterly, June 2004, http://www3.interscience.wiley.com/journal/118763813/abstract.
Syllabus for Economics 753: Applied Econometrics
Profs. Michael Ash and Robert Pollin
Fall 2010
Page 5
VI. New Econometric Tools (2 classes)
From the Journal of Economic Perspectives, Fall 2001, http://www.jstor.org/stable/i346045:
John DiNardo and Justin Tobias, “Nonparametric Density and Regression Estimation.”
David Brownstone and Robert Valletta, “The Bootstrap and Multiple Imputations: Harnessing
Increasing Computer Power for Improved Statistical Tests.”
Roger Koenker and Kevin Hallock, “Quantile Regression.”
Sanjiv Gupta and Michael Ash, “Whose Money, Whose Time? A Non-Parametric Approach to
Modeling Time Spent on Housework,” University of Massachusetts Amherst Economics
Department Working Paper, May 2006, http://www.umass.edu/economics/publications/200606.pdf.
Marianne P. Bitler, Jonah B. Gelbach, and Hilary W. Hoynes, “What Mean Impacts Miss:
Distributional Effects of Welfare Reform Experiments,” The American Economic Review,
Vol. 96, No. 4 (Sep., 2006), pp. 988-1012, http://www.jstor.org/pss/30034327
Barbara Sianesi, “Implementing Propensity Score Matching Estimators with STATA,” UK Stata
Users Group, VII Meeting London, May 2001
http://fmwww.bc.edu/RePEc/usug2001/psmatch.pdf
Douglas Almond, Kenneth Y. Chay, and David S. Lee, “The Costs of Low Birth Weight,”
Quarterly Journal of Economics August 2005, Vol. 120, No. 3, Pages 10311083,http://www.princeton.edu/~davidlee/wp/birthweight.pdf.
VII. Distributed Lags and Autocorrelation in Aggregate Investment Functions
(2.5 Classes)
Berndt, Ch. 6.
Stock and Watson, Chs. 8, 10 and 14 as needed.
S. Fazzari, Hubbard and Peterson, “Financing Constraints and Corporate Investment,” Brookings
Papers on Economic Activity, 1: 1988, http://www.jstor.org/stable/2534426.
Feng Xiao, “Does the Stock Market Affect Investment by Chinese Firms? International Review of
Applied Economics, 2009, pp. 197-213,
http://www.informaworld.com/smpp/content~db=all?content=10.1080/02692170802700542 .
Leoncé Ndikumana, “Macroeconomic Policy Factors and Private Investment in South Africa,”
Appendix 2 of Pollin, Epstein, Heintz and Ndikumana, An Employment-Targeted Economic
Program for South Africa, http://www.peri.umass.edu/Publication.236+M5adee5a4c07.0.html
David Gordon, “Must We Save Our Way Out of Stagnation?: The Investment/Savings Relation
Revisited” in R. Pollin ed., The Macroeconomics of Saving, Finance and Investment, pp.
126-36. http://books.google.com/books?id=NZUYF-AofyMC.
VIII. Causality and Simultaneity in Micro and Macro Settings (4 Classes)
Berndt, Chapter 8.
Syllabus for Economics 753: Applied Econometrics
Profs. Michael Ash and Robert Pollin
Fall 2010
Page 6
Micro 1: Instrumental Variables and Quasi-Experiments
Joshua Angrist and Alan Krueger, “Instrumental Variables and the Search for Identification:
From Supply and Demand to Natural Experiments,” Journal of Economic Perspectives,
Fall 2001, http://www.jstor.org/stable/i346045.
Steven D. Levitt, “Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on
Crime,” American Economic Review, June 1997, http://www.jstor.org/stable/2951346.
Justin McCrary, "Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on
Crime: Comment,” American Economic Review, September 2002,
http://www.jstor.org/stable/3083311.
Micro 2: Regression Discontinuity
DiNardo, John E. and Lee, David S.,The Impact of Unionization on Establishment Closure: A
Regression Discontinuity Analysis of Representation Elections(June 2002). NBER
Working Paper No. W8993. Available at SSRN: http://ssrn.com/abstract=315990
David S. Lee and Thomas Lemieux, “Regression Discontinuity Designs in Economics,” NBER
Working Paper 14723, February 2009, http://www.nber.org/papers/w14723
M. Keith Chen and Jesse M.Shapiro, “Do Harsher Prison Conditions Reduce Recidivism? A
Discontinuity-based Approach,” American Law and Economics Review, June 12, 2007,
http://www.som.yale.edu/faculty/keith.chen/papers/Final_ALER07.pdf.
Macro: Granger Causality, Cointegration, and VAR
Stock and Watson, Ch. 14 as needed and Chs. 12-13 passim.
R. Pollin, “Two Theories of Money Supply Endogeneity: Some Empirical Evidence,” Journal of
Post Keynesian Economics, Spring 1991, 366-396, http://www.jstor.org/pss/4538249.
R. Pollin, “Considerations on Interest Rate Exogeneity,” PERI Working Paper #177,
http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP177.pdf.
Olivier Blanchard and Roberto Perotti, “An Empirical Characterization of the Dynamic Effects of
Changes in Government Spending and Taxes on Output,” Quarterly Journal of Economics,
2002, pp. 1329-1368,http://www.jstor.org/stable/4132480.
James Heintz, “The Impact of Public Capital on the U.S. Private Economy: New Evidence and
Analysis, International Review of Applied Economics, forthcoming, 2010.
John A. Tatom, “Public Capital and Private Sector Performance,” Federal Reserve Bank of St. Louis
Review, 1991, http://research.stlouisfed.org/publications/review/91/05/Public_May_Jun1991.pdf
Alicia Munnell, “Why Has Productivity Growth Declined? Productivity and Productive
Performance,” New England Economic Review, September-October, 1990, 11-32,
http://www.bos.frb.org/economic/neer/neer1990/neer190a.pdf.
Syllabus for Economics 753: Applied Econometrics
Profs. Michael Ash and Robert Pollin
Fall 2010
Page 7
IX. Parameter Estimation in Structural and Reduced Form Equations of Small
Macroeconometric Models: The Phillips Curve and NAIRU (3 Classes)
Berndt, Ch. 10
Robert Pollin, “Wage Bargaining and the U.S. Phillips Curve: Was Greenspan Right about
‘Traumatized Workers’ in the 1990s?” unpublished manuscript.
Robert J. Gordon, “The Time-Varying NAIRU and its Implications for Economic Policy,” J. of
Economic Perspectives, Winter 1997, 11-32, http://www.jstor.org/pss/2138249.
Douglas Staiger, James H. Stock, and Mark W. Watson, “The NAIRU, Unemployment and
Monetary Policy,” Journal of Economic Perspectives, Winter 1997, 33-50,
http://www.jstor.org/pss/2138250.
Douglas Staiger, James H. Stock, and Mark W. Watson, “Prices, Wages, and the U.S. NAIRU in
the 1990s,” in Krueger and Solow, eds., The Roaring Nineties: Can Full Employment Be
Sustained? pp. 3–60, http://books.google.com/books?id=mm6A32m53PsC.
Robert Pollin and James Heintz, “Expanding Decent Employment in Kenya: The Role of
Monetary Policy, Inflation Control and the Exchange Rate,” UNDP International Poverty
Centre, Country Study #6, 2007, pp. 11-15 and 34-37, http://www.undppovertycentre.org/pub/IPCCountryStudy6.pdf.
Michael Bruno “Does Inflation Really Lower Growth?” Finance and Development, September
1995, pp. 35–38.
Michael Bruno and William Easterly, “Inflation Crises and Long-Run Growth,” Journal of
Monetary Economics, 1998, 41, pp. 3 – 26, http://www.sciencedirect.com/science/article/B6VBW3SX82ND-1/2/c6e2a1139dbc5ce04e46a889b14b3d01 .
Robert Pollin and Andong Zhu, “Inflation and Economic Growth: A Cross-Country Non-Linear
Analysis, Journal of Post Keynesian Economics, Summer 2006, pp. 593-614. Also at:
http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_101-150/WP109.pdf
X. Student Oral Presentations of Course Term Papers (2 classes)
Start thinking about it right away.