Indian Institute of Management Bangalore

Econometrics for Consultants

PGP Term 4, 2021

Instructor: Tirthatanmoy Das Class Days: Fri, Sat
Office: Faculty Block C- 208 Class Time: 4:00 - 5:45 PM
Email: tirthatanmoy.das@iimb.ac.in Classroom: Online
Office Hours: TBA

Teaching Assistant: Henam Singla

Email: henam.singla@iimb.ac.in
Office Hours: TBA

**Given the unusual situation caused by the coronavirus outbreak, this syllabus
may be changed or modified during the term

Course Summary

Consultants make decisions based on intuition, theory, and data. This course
blends these components. It is a practice-oriented course, which offers students
of business (e.g., finance, marketing, strategy, operation research, etc.) and policy
an opportunity to conduct hands-on data analysis guided by theory. Over the
term, students will get the chance to apply the techniques learned in class to real
world datasets, construct hypotheses relevant to business and economics,
analyze relevant data, and interpret the results to understand the relationship
between factors important for business and policy decisions.

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 Course Objectives

The course is designed to achieve the following specific objectives and learning
outcomes:

a) Learn several econometric/empirical tools useful for making business

decisions

b) Test several business and economic hypotheses

c) Analyze and interpret the results to understand the relationship among

variables in business and economics

d) Work with real-world datasets and statistical software (e.g., STATA, R)

commonly used in business and economic research

e) Use the results for business or policy decision-making

f) Present research findings in the format of a research report and give your
advice as a consultant

Course Pedagogy

Text: Econometrics by Example by Damodar Gujarati, 2nd ed., Palgrave.

Optional Readings: Introductory Econometrics by Jeffrey Wooldridge, 5th ed.,

Cengage. Other readings may be assigned depending on the requirements and
the progress in class.

Software: This course will require the use of a statistical software. You may
choose to either use STATA 15/16/17 or R for your work. STATA and R are two
software widely used for business and economic research. They run on
Windows, Mac, and Linux operating systems. You need to specify your
operating system when you use/install them on your computer. I will teach some
basics of R in class.

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 Course Attendance Policy

The Institute’s attendance policy will be enforced. As such, the minimum

attendance is 80% (16 class sessions out of 20). Those who fall below this
threshold will be subjected to a grade point drop as per the Institute policies.
However, attending classes itself is not sufficient. Being attentive and alert in
class will help you do well in exams.

Course Evaluation & Grading Pattern

This course has three modes of evaluation: (1) a quiz, (2) a final examination, (3) a
team research report and presentation (in-class).

Relative weights: the quiz (20%), the final examination (40%); the team research
report and presentation (30% + 10% = 40%).

Team empirical research report and presentation: The course requires that you submit
a team research report and make a presentation towards the end of the term. The
teams will be determined as the course progresses. Your team needs to formulate
a research question, identify an appropriate dataset, analyze the data, and
present and submit a team research report towards the end of the term. You may
consider the datasets subscribed by IIM-B for conducting this research project.
Please see the ‘Team Research Report Guidelines’ below for further details. The
submission deadlines and presentation dates will be announced later.

All evaluation components are compulsory. The quiz and the final exam would
have MCQs, numericals/short answer/data analysis/open-ended questions. Quiz:
90 minutes; Final: 180 minutes. All exams would be open book. Date: as
determined by the PGP office.

Make-Up Exams

There will be NO make-up exams unless the Institute policies mandate for it. If

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you happen to miss an exam due to foreseen circumstances, there would be NO
way in which you would be able to make up for it. It remains your responsibility
to manage your time.

Academic Dishonesty

Academic dishonesty, in any form, will not be tolerated. If you are unsure about
what constitutes academic dishonesty, please refer to the PGP guidelines or
contact the PGP office for rules and regulations on academic dishonesty. Any
violation of these norms would attract penalty as per instructor’s discretion and
the Institute policies. I will not hesitate from assigning you an F in case these
norms are violated.

A Personal Note

I rely on full cooperation from every member in the class to make this course a
mutually rewarding course for everyone. Effective learning is a joint effort of
students and faculty. Violation of rules and norms may lead to penalty as per the
discretion of the instructor and the Institute policies. I will try to ensure that this
course adds tremendous value to your learning experience at IIM Bangalore.

Based on the need and the progress of the class, the syllabus may be changed or
modified during the term.

Welcome to “Econometrics for Consultants”

GOOD LUCK

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 Session-wise plan (provisional)

Session
s

1 Consultants makes decisions based on intuition, theory and data: a course

overview and types of data

- Readings: Econometrics by Example by Gujarati: Ch1.

2-4 Establish relationship between determinant(s) and outcomes

- Topic: The linear regression model

- Readings: Econometrics by Example by Gujarati: Ch1

Hands-on data work session:

*Analysing data from the US manufacturing sector

5 What if the relationships are non-linear: growth models, trend model, etc.

- Topic: Variations on the linear regression model

- Readings: Econometrics by Example by Gujarati: Ch 2

Hands-on data work session:

*Analysing the US real GDP data
*Analysing the US household expenditure data

6 What if the relationships are non-linear: reciprocal models, etc.

- Topic: Variations on the linear regression model

- Readings: Econometrics by Example by Gujarati: Ch 2

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 Hands-on data work session:
*Analysing the US household expenditure data
*Analysing the US real GDP data
*Analysing corruption and GDP

7 Judging relative importance of determinants, and a few other models

- Topic: Variations on the linear regression model

- Readings: Econometrics by Example by Gujarati: Ch 2

Hands-on data work session:

*Analysing data from the US manufacturing sector
*Analysing CAPM of the UK stock market

8 What if determinants are qualitative (e.g., binary)?

- Topic: Variations on the linear regression model

- Readings: Econometrics by Example by Gujarati: Ch 3

Hands-on data work session:

* Analysing production lot size and average cost
*Analysing retail fashion sales data
* Analysing data on gross private investments and gross private savings from
the US

9-10 Consultants often face problems with inferences, and device remedies

- Topic: Issues with inference

- Readings: Econometrics by Example by Gujarati: Ch 4, Ch 5, Ch 6

Hands-on data work session:

*Analysing married women’s hours of work in the labor market
*Analysing the US consumption function
* Analysing the US manufacturing industries
* Analysing the US Housing starts data

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 11-12 Is the consultant estimating the right model: sometimes taking a relook is
necessary

- Topic: Model specification errors

- Readings: Econometrics by Example by Gujarati: Ch 7

Hands-on data work session:

*Analysing married women’s hours of work in the labor market
*Analysing cross country consumption of cigarette and death rate from lung
cancer
*Estimating the US aggregate consumption function

13-14 Often consultants analyze `decisions’: binary responses

- Topic: Modelling dichotomous and limited dependent variables: the

logit, probit and tobit models.

- Readings: Econometrics by Example by Gujarati: Ch 8, 11

Hands-on data work session:

*Analysing customers (of a commercial bank) investment decision on a new
financial product and marketing campaign
* Analysing homeowners’ choices between adjustable and fixed rate mortgages
* To smoke or not to smoke: analysing cigarette smoking behavior

15-16 Can consultants know subject specific (e.g., firm, industry, states, country etc.)
unobserved characteristics?

- Topic: Longitudinal/panel data models

- Readings: Econometrics by Example by Gujarati: Ch 17

Hands-on data work session:

* Analysing demand for residential electricity and natural gas in the US.
*Analysing beer sales and alcohol control policy
*Analysing public investment in productivity growth in 48 US states

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 17 Consultants often look for causality: the causal determinants of outcomes

- Topic: Causal effects: 2-stage least squares with instrumental variables

- Readings: Econometrics by Example by Gujarati: Ch 19

Hands-on data work session:

* Analysing expenditure on crime prevention in the US

18 – 20 Presentations and other course activities.

Team Research Report Guidelines

1. Submit a one-page proposal (towards middle of the term).

2. Submit a report (Up to eight pages excluding the title page).

Font size 12, double space, Times New Roman.

Format of the proposal (one page)

1. Title
2. Your name(s)
3. Research question (i.e., the question that your analysis will attempt to answer)
4. Unit of observation (e.g., firm, company, industry, people etc.)
5. Time period covered (e.g., year, month, day etc.)
6. Number of observations
7. Dependent/outcome variable (with descriptions)
8. Determinants/Independent variables (with descriptions)
9. Data sources

Final Report (a maximum of eight pages)

You must write your findings in a research report and submit it. Here’s the

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format to follow. Each report should contain the following parts in the following
order:

1. Title page (not counted towards the eight-page limit):

a) Title
b) Your name(s)
c) Course name, Term and Year
d) Team/group number

2. The Main Text (must have five sections):

a) Introduction: State the main question(s) you will attempt to answer and
provide related background information.

b) Data: List your data sources, describe the variables (e.g., dependent,
explanatory, control etc.), mention the unit of observation, number of
observations and the time-period covered.

c) Empirical Strategy: Explain your econometric strategy to answer your question.

d) Results and Final Model Evaluation: Report, explain, interpret, and evaluate your
results. Explain how your results answer the question(s) you posed.

e) Summary: Summarize your findings and give your advice as a consultant.