1-1/22
Econometrics I
Professor William Greene
Stern School of Business
Department of Economics
Part 1: Introduction
1-2/22
Econometrics I
Part 1 - Paradigm
Part 1: Introduction
1-3/22
Econometrics: Paradigm
Theoretical foundations
Microeconometrics and
macroeconometrics
Behavioral modeling: Optimization, labor
supply, demand equations, etc.
Statistical foundations
Mathematical Elements
Model building the econometric
model
Mathematical elements
The underlying truth is there one?
Part 1: Introduction
1-4/22
Why Use This Framework?
Understanding covariation
Understanding the relationship:
Estimation of quantities of interest such as
elasticities
Prediction of the outcome of interest
The search for causal effects
Controlling future outcomes using
knowledge of relationships
Part 1: Introduction
1-5/22
Model Building in Econometrics
Role of the assumptions
Parameterizing the model
Nonparametric analysis
Semiparametric analysis
Parametric analysis
Sharpness of inferences
Part 1: Introduction
1-6/22
Application: Is there a relationship between investment
and capital stock? (10 firms, 20 years)
Part 1: Introduction
1-7/22
Nonparametric Regression
Kernel Regression
N
w (z)yi
i=1 i
F(z)=
Ni=1wi (z)
1 xi -z
K
.9s / N0.2
wi (z)
K(t) (t)[1 (t)]
(t)
exp(t)
1 exp(t)
What are the assumptions?
conclusions?
What are the
Part 1: Introduction
Semiparametric Regression
Investmenti,t = a + b*Capitali,t + ui,t
Median[ui,t | Capitali,t] = 0
Least Absolute Deviations
F(x)=a+bx
a,b=ArgMin
a,b i1|yi a-bxi |
1-8/22
Part 1: Introduction
Fully Parametric Regression
Investmenti,t = a + b*Capitali,t + ui,t
ui,t | Capitalj,s ~ N[0,2] for all i,j,s,t
Ii,t|Ci,t ~ N[a+bCit,2]
Least Squares Regression
F(x)=a+bx
2
a,b=ArgMin
a,b i1 (yi a bxi )
N
1-9/22
1
N 1
i=1 x x
i i
1
i=1 yi
xi
Part 1: Introduction
1-10/22
Estimation Platforms
The best use of a body of data
Sample data
Nonsample information
The accretion of knowledge
Model based
Kernels and smoothing methods (nonparametric)
Moments and quantiles (semiparametric)
Likelihood and M- estimators (parametric)
Methodology based (?)
Classical parametric and semiparametric
Bayesian strongly parametric
Part 1: Introduction
1-11/22
Classical Inference
Population
Measuremen
Econometri t
cs
Characteristics
Imprecise inference
Behavior
about the entire
Patterns
population sampling
theory and asymptotics
Choices
Part 1: Introduction
1-12/22
Bayesian Inference
Population
Measuremen
Econometri t
cs
Characteristics
Sharp, exact inference
Behavior
about only the sample the
Patterns
posterior density.
Choices
Part 1: Introduction
Data Structures
1-13/22
Observation mechanisms
Passive, nonexperimental
Active, experimental
The natural experiment
Data types
Cross section
Pure time series
Panel
Longitudinal data NLS
Country macro data Penn W.T.
Financial data
Part 1: Introduction
Estimation Methods and Applications
1-14/22
Least squares etc. OLS, GLS, LAD, quantile
Maximum likelihood
Formal ML
Maximum simulated likelihood
Robust and M- estimation
Instrumental variables and GMM
Bayesian estimation Markov Chain Monte Carlo methods
Part 1: Introduction
Trends in Econometrics
1-15/22
Small structural models vs. large scale multiple
equation models
Non- and semiparametric methods vs. parametric
Robust methods GMM (paradigm shift)
Unit roots, cointegration and macroeconometrics
Nonlinear modeling and the role of software
Behavioral and structural modeling vs. reduced
form, covariance analysis
Pervasiveness of an econometrics paradigm
Identification and Causal effects
Part 1: Introduction
1-16/22
Course Objective
Develop the tools needed to read
about with understanding and to do
empirical research using the current
body of techniques.
Part 1: Introduction
Prerequisites
A previous course that used regression
Mathematical statistics
Matrix algebra
1-17/22
We will do some proofs and derivations
We will also examine empirical applications
Part 1: Introduction
Readings
Main text: Greene, W., Econometric Analysis,
7th Edition, Prentice Hall, 2012.
A few articles
Notes and materials on the course website:
[Link]
1-18/22
Part 1: Introduction
[Link]
1-19/22
Part 1: Introduction
The Course Outline
No class on:
Thursday, September
25
Midterm: October 21
Final: Take home due
December 19
1-20/22
Part 1: Introduction
Course Applications
Software
1-21/22
NLOGIT provided, supported
SAS, Stata, EViews optional, your choice
R, Matlab, Gauss, others
Questions and review as requested
Problem Sets: (more details later)
Part 1: Introduction
1-22/22
Course Requirements
Problem sets: 5 (25%)
Midterm, in class (30%)
Final exam, take home (45%)
Enthusiasm
Part 1: Introduction
