ECON 330: Econometrics

Fall Semester 2017-2018

Course Outline

Adeel Tariq
Office: 148 (Extn: 8462)
Email: adeel.tariq@lums.edu.pk
Office Hours: Tue/Thu 1:30 PM-2:30 PM

Description This is the second course in the statistics/econometrics sequence and looks
at the broad range of estimation problems that often arise in economic
applications. In particular, we look at the criteria used to select a particular
estimation method and the scenarios under which the OLS estimator
becomes sub-optimal. The purpose of this course is to teach students the
basics of econometric theory and also to give them hands-on experience
with using a statistical package Stata, which will be helpful in later
applications especially for those students who choose to do an empirical
senior project.

Goals On successful completion students will:

1. be able to develop a suitable regression model for a variety of empirically
interesting problems and validate the selected model via a battery of tests
2. be able to compare different estimators based on their finite sample and
asymptotic properties
3. develop a basic understanding of time series econometrics and be able to
handle and make use of panel data
4. be proficient in the use of Stata for econometric analysis

Prerequisites
<Probability AND Statistics> OR <Statistics and Data Analysis>;
Microeconomics 1 OR Principles of Microeconomics; Macroeconomics 1
OR Principles of Macroeconomics

Text Book
Wooldridge, Jeffrey M. 2014. Introductory Econometrics. 5th edition.
Thomson South-western.

Reference Texts

1. Dougherty, Christopher. 2011. Introduction to Econometrics. Oxford

University Press.
2. Kohler, Ulrich and Frauke Kreuter. 2012. Data Analysis using Stata. Stata
Press.
3. Banerjee, Abhijit V., and Esther Duflo. 2011. Poor Economics: A Radical
Rethinking of the Way to Fight Global Poverty. Public Affairs.
4. Hamilton, Lawrence C. 2006. Statistics with Stata. Thomson Brooks/Cole.
5. Levitt, Steven D., and Stephen J. Dubner. 2009. Freakonomics: A Rogue
Economist Explores the Hidden Side of Everything. Harper Perennial.
Lectures
Two lectures of 90 minutes plus one 50-minute lab session (led by the TAs)
per week. The course outline below refers to sections from your textbook.
Relevant sections of the textbook are included in your course reading package
and the reference texts may be obtained from the Library.

Online Resources
To learn STATA you may use:
http://www.ats.ucla.edu/stat/stata/
STATA illustrations for all our text book examples are at:
http://fmwww.bc.edu/gstat/examples/wooldridge/wooldridge.html
The power-point slides for the book are also available at:
http://www.swlearning.com/economics/wooldridge/wooldridge2e/powerpoint.html

Grading
Lab Assignments 10%
Take-home Assignments (4) 15%
Project 15%
Quizzes (6) 30%
Final Exam 30%

Course Policies

Quizzes: There will be four announced in-class quizzes, which will take place through
the semester. There will be two announced in-lab quizzes.
Lab Assignments: Attendance in the labs is mandatory and in some labs we will be
giving students lab assignments with problems to be solved individually during the lab
timings. This counts for 10% of the course grade.
Take-home Assignments: Students are encouraged to work on these assignments in
groups of around 3 students. However, the submission of assignment is to be done
individually by each student in their own handwriting. There will be group grading of
assignments (an individual’s assignment from within a group will be picked randomly for
grading and the same grade will be assigned to the entire group for that lab). Please note
that it is possible under this grading scheme for all group members to get zero even if one
group member does not submit the assignment (or its correct solution). This is to improve
learning by encouraging discussion within groups while also ensuring that everyone gets
to do the assignment. Please note that sharing or discussing assignments with anyone
outside your own group is NOT allowed and makes grounds for a disciplinary action.
Group formation is voluntary but some groups may need to be adjusted by the TA.
Project: The objective of the project is to provide you an opportunity to apply the skills
you learn in class to a real world application. Usually a couple of data sets will be made
available to students for this purpose. The project would require you to pick a data set
provided for this purpose and write a short paper based on your analysis. The project
grade will be determined on the basis of an intelligent use of this data to address the
research question and an appropriate interpretation of results. Like the assignments, the
project would be group-based and we may conduct a viva from group members ex-post.
The groups for the assignments and the project must be the same. Students are
encouraged to discuss their project with me (during office hours) or with their TAs.
Drop One Quiz Policy/Missed Quiz Petitions: The lowest scoring quiz for each student
will be dropped before grading. Other than the Drop-quiz policy, no petition will be
entertained to drop or make-up for missing any of the instruments in the course. To
reiterate, it is the student’s responsibility to do the assigned work in this course. We do
not allow petitions for missed work regardless of the underlying circumstances.
Instrument Grading: All the course instruments are checked as thoroughly and fairly as
possible and the process consumes a lot of your TAs’ and instructor’s time. Therefore,
and to ensure uniformity in grading across all students, there will be no haggling over
marks ex-post. While we encourage student queries meant to improve learning, please
note that your TAs are not authorized to change your marks unless they have made a
tallying mistake.

Detailed Course Outline

Sr. Topic Readings Weeks

No.
1 Introduction Ch1. 1.1, 1.2, 1.4 1.5
What is econometrics?
Steps in empirical economic analysis
The structure of economic data; random sampling
Simple Regression Model
Deriving the OLS estimates Ch.2.1, 2.2, 2.4
Algebraic properties Appendix B
Deriving statistical properties: mean and variance
2 Multiple Regression: Estimation Ch. 3 1.5
[[Causality and Marginal effects]]
Mechanics and Interpretation of OLS
Classical Linear Model Assumptions
The Gauss-Markov Theorem
Properties of OLS – Mean and Variance

Topics in OLS: 1
Effects of Data Scaling: 6.1
Functional Form: 6.2
Goodness-of-Fit and Model Selection: 6.3
Functional form mis-specification: 9.1

3 Multiple Regression: Inference Ch. 4 2

Sampling Distribution of the OLS estimators
The t-test – testing a single restriction
Confidence Intervals
Testing multiple restrictions
Multiple Regression Analysis: OLS Asymptotics Ch. 5;
Law of Large Numbers and Central Limit Theorem Appendix C
Consistency
 Asymptotic Normality and Large Sample Inference

4 Functional Form and Dummy Variables Ch. 7 1

Dummy independent variables
Using dummy variables for multiple categories
Interactions using dummy variables
Dummy dependent variable

5 More Topics in OLS Ch. 6.4, 9.4 0.5

Prediction and Residual Analysis: 6.4
Missing Data, Outliers: 9.4

6 Heteroskedasticity Ch. 8 1
Consequences of Heteroskedasticity
Robust inference
Testing for heteroskedasticity
Weighted Least Squares

7 Instrumental Variable Estimation and 2SLS Ch 3.3, 9.2, 9.3, 2

Correlation between X and error; Omitted variable 15.1-15.5;
bias (3.3); OLS under measurement error (9.3);
Using Proxy Variables for Unobserved Explanatory
Variables (9.2); IV estimation and the 2SLS; Testing
for endogeniety and over-identifying restrictions;
8 Simultaneous Equation Models Ch 16.1-16.3 0.5
The nature of simultaneous equation models;
simultaneity bias in OLS; Identifying and estimating
a structural equation (vs. reduced form); systems
with more than two equations
9 Regression with Time Series Data Ch. 10 1
Nature of time series data; Examples of TS models;
Finite sample properties of OLS under Gauss-
Markov assumptions; Functional form, dummy
variables, index numbers; Trends and seasonality;
10 Panel Data Models Ch 13.1-13.5; 1.5
Pooling independent cross-sections across time; two- 14.1-14.3
period panel data; differencing with more than two
time periods: fixed-effects estimation; random-
effects models; grouped data; policy analysis
(difference-in-difference and panel estimation)

* The readings are all from the Wooldridge textbook unless otherwise indicated