ECONOMICS 340

Econometrics

**Term 4 2007-2008**

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**Office:** 201 College Hall

**Telephone:** 895-4208 (voice mail)

**e-mail:** tknoop@cornellcollege.edu

**homepage:** http://people.cornellcollege.edu/tknoop/

**Class
Times:** 9:15-11:15 Monday
-Friday

1:00-2:00 Monday – Thursday TBD

**Office
Hours:** 11:15-12:00 Monday-Friday
and by appointment

** Required
Texts:** Ramu
Ramanathan, “Introductory Econometrics with Applications.”

5th edition

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__Introduction:____ __

*“Persons
pretending to forecast the future shall be considered disorderly under
subdivision 3, section 901 of the criminal code and liable to a fine of $250
and/or six months in prison.”*

* --
Section 889, New York State Code of Criminal Procedure*

Econometrics deals with the application of statistical methods in order to test economic theory. More broadly, it is concerned with:

(1) estimating economic models,

(2) confronting economic theory with facts and testing hypotheses,

(3) forecasting the future behavior of economic variables (which puts you in danger of being prosecuted under Section 889 if you do it in New York!).

Econometrics is an important part of applying economics to the real world. In fact, econometrics is the most common way that economics is used on a day-to-day basis. Chances are that if in the future you get a job in which economics is directly applicable, a great deal of what you will be doing will involve econometrics.

Econometrics is often perceived among students as being “useful” but “boring”. I think that this is because the econometrics that is taught in the classroom often focuses on the “why” questions, meaning that the primary focus is on developing the theory of using statistics in economics and using elaborate arguments to prove this theory.

In contrast, the focus of this class will be on the “how” and not the “why”. We will try to stay away from complex statistical proofs and instead focus on how econometrics can be used to get meaningful results that provide useful data and which can be used to support or raise questions about existing economic theory. By focusing on the “how” questions, our goal will be to develop some tools, especially computer skills, that students can use outside of the classroom, in future jobs, or in other disciplines.

** Class
Format**: I plan
on using class time in the following manner. The morning sessions will
primarily consist of lecturing from our main textbook. The afternoon sessions
will primarily be used for computer lab sessions.

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** Grading:** Course grades will be determined
by four classes of assignments:

__(1)
Homework (30%):__ A
series of approximately 5-6 homework assignments will be given throughout the
term. These homeworks will partially consist of computer assignments which
will allow students to directly apply class material to some real world
examples.

__(2)
Paper (30%):__ An
empirical study of each student’s choosing will be required. This paper should
consistent of a complete empirical investigation of an economic topic and
should consist of the following sections:

(1) Introduction and an explanation of the economic model to be tested.

(2) An explanation of the data used in the study.

(3) Estimation of the basic model and discussion of potential problems.

(4) Hypothesis tests and an investigation of the robustness of the model.

(5) Interpretation of the results and conclusions.

(6) References.

The best papers will be those that most completely and fully evaluate a plausible economic model using the econometric techniques developed in class. The paper should be approximately 7-10 pages in length (excluding computer printouts and data).

While a literature review is not part of this paper, students are expected to identify at least two published research papers on similar or related topics to the one that they are investigating. EconLit, which is available at the library, is an excellent place to begin looking for these papers.

In addition, students will be required to present a brief 20-30 minute discussion of their research with their fellow classmates in class.

__(3)
Final Exam (30%):__
One comprehensive exam will be given on the last day of class.

__(4)
Class Participation (10%):__ Credit for class participation will be based on both quantity and quality
on content.* If you miss a class it is your responsibility to find out what
announcements and other materials or assignments were presented in class. *

- In this class we will use STATA statistical software. This software is available on the laptop machines in CH 118. It can also be run off the G: drive on other computers with college network access (under Apps_G-S). We will use STATA because it is one of the state-of-the-art statistical programs. In a real sense it really makes no difference which econometrics software package you use (the major packages are SHAZAM, SAS, EVIEWS, Statistix) because they all operate under the same principles and work just the same with only small differences in lingo. However, we will solely use STATA in this course for consistency (and because the college won’t buy the other ones).

- All of the datasets used in Ramanathan’s books and for the homeworks are available in STATA format on the G: drive under G:/assignments/ECB/340.

General economic data is available from many different sources on the web. Here are some places to begin:

- The college has recently purchased membership to an important source of social science and other data called the Inter-University Consortium for Political and Social Research (ICPSR). This is an immense database that has data in economics but also across the social sciences. The ICPSR homepage is http://www.icpsr.umich.edu/index.html. Information about the ICPSR can be found at http://www.lawrence.edu/fast/isaacsok/icpsr/Introsession.html.

- There are some good webpages that maintain data resources available on the internet, such as ones at St. Lawrence University, http://it.stlawu.edu/~rlock/datasurf.html, UC Berkley, http://elsa.berkeley.edu/eml/emldata.shtml, and Stanford, http://www.ssrn.com/.

- A good source for international macroeconomics data is the Penn World Tables, http://pwt.econ.upenn.edu/, the GGDC Total Economy database, http://www.ggdc.net/dseries/totecon.html, Country Watch data, http://www.countrywatch.com/data/data.aspx, and the DDCN database, http://ddcn.prowebis.com/.

- Ramanathan’s book web page http://weber.ucsd.edu/~rramanat/embook5.htm also includes links to various databases.

- My homepage http://people.cornellcollege.edu/tknoop/has other useful econometric sites. For example, www.economagic.com has an excellent collection of historical macro data that can be downloaded in a format that can easily be converted for use in STATA.

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** Notes:** Academic dishonesty will not be
tolerated and will be dealt with in the harshest manner that is still in
accordance with Cornell’s regulations in the student handbook. Academic
dishonesty can include the failure to properly document sources of information
used in your work.

**OUTLINE OF TOPICS AND READINGS**

**(tentative)**

Also, additional articles and topical readings will be assigned throughout the term.

*Section
1: Introduction and Review of Basic Statistics*

__Monday
#1:__ Introduction R:
Chapter 1

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__Tuesday
#1:__ Review of
Statistics R: Chapter 2

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__Wednesday
#1__: Review of
Stats, cont.

*Section
2: Ordinary Least Squares Estimation*

__Thursday
#1__: Simple Regression
Model R: Chapter 3

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__Friday
#1__: Simple
Model, cont.

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__Monday
#2__: Multiple
Regression Model R: Chapter 4

__Tuesday
#2__: Multiple
Model, cont.

__Wednesday
#2__: Multicollinearity R:
Chapter 5

*Section
3: Problems with Specifying Economic Models*

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__Thursday
#2:__ Model
Specification R: Chapter 6

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__Friday #2__: Model Specification,
cont.

__Monday
#3__: Dummy
Variables R: Chapter 7

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*Section
4: Violations of Ordinary Least Squares Assumptions*

__Tuesday
#3:__ Heteroscedasticity R:
Chapter 8

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__Wednesday
#3:__ Serial
Correlation R: Chapter 9

__Thursday
#3__: Serial
Correlation, cont.

__Friday
#3:__ Simultaneous
Equations R: Chapter 13

__Monday
#4__ Classroom
Presentations

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__Tuesday
#4__: Classroom
Presentations/

Conclusions

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__Wednesday
#4:__ **FINAL EXAM**