**ES30027: ECONOMETRICS 1**

**Semester 1**

**Credits 6**

**Contact: Prof. J.R. Hudson: J.R.Hudson@bath.ac.uk**

**Level: 3**

**Assessment: Exam 100%**

**AIMS & LEARNING OBJECTIVES**

The aim of the course is to introduce the student to econometrics enabling
him/her to use STATA, a widely used computer package program, as well as
briefly introduce them to RATS, another program. They will also become
confident with the use of matrix algebra which is very much the language of
econometrics. The course is a difficult and demanding one. But econometrics is
one of the foundations of the modern economists
toolkit and you cannot be an economist today or do postgraduate work without an
ability to use econometrics. At

**CONTENT**:

You will cover a greater range of issues than in most other Universities. The topics covered include ordinary least squares (briefly as already covered previously), measures of goodness of fit, simultaneous equation methods and problems (including weak instruments), serial correlation + heteroscedasticity + GLS, errors in variables, measurement errors, stationarity and cointegration, maximum likelihood and limited dependent variables. In addition, the following books will be of use:

**Key Texts:**

1. William Greene, Econometric Analysis, Prentice Hall, is rapidly becoming something of a standard.

2. Johnson & Dinardo - Econometrics, McGraw Hill, paperback available. The classic text, excellent for matrix algebra and very much the text on which this and many other courses are based, although as I say Greene is probably now regarded as the standard.

3. Pindyck and Rubinfeld, Econometric Models and Economic Forecasts. Excellent McGraw Hill text, uses matrix algebra, but not to the extent of Johnson. The best reference for ARIMA modelling

4. Cuthbertson, Hall and Taylor, one of the main textbooks to deal with the `new' approaches to econometrics, which in this course means stationarity and cointegration, paperback available, will shortly be in library.

5. Enders, W. Applied Econometric Time Series, Wiley and Sons. Also good for time series analysis. Heavily linked to RATS.

**McFadden’s Book (an actual online book with material which is relevant
for parts of the course):**

**http://elsa.berkeley.edu/users/mcfadden/e240b_f01/e240b.html**

**ALSO: http://www.oup.com/uk/orc/bin/9780199280964/01student/ppts/**

*Resources*

http://www.estima.com for links to the RATS website including programs which can be downloaded and further links to other relevant websites.

This gives a page reviewing econometric software, including e.g. the use of EXCEL to do empirical work. http://econltsn.ilrt.bris.ac.uk/cheer.htm

The following gives a link to the Econometrics Journal on line, with lots of further links to econometricians, software and data sources: http://www.econ.vu.nl/econometriclinks/

Also look at the American Economic Associations webpage for links on data, software, etc: http://www.aeaweb.org/RFE/index.html

A guide to econometric software: http://www.oswego.edu/~economic/econsoftware.htmhttp://www.oswego.edu/~economic/econsoftware.htm

The Centre for Microdata Methods and Practice (particularly resouces and Greene’s lecture notes):

**ORGANISATION**

The course consists of a series of two hour lectures + virtual classes on use of package programs + classes in the computer lab.

Topic Plan

Topics will not necessarily correspond to weeks. Some topics, particularly those with which the student will have met previously, will be dealt with more quickly than others.

For a resume on what you should know from early lectures see: http://staff.bath.ac.uk/hssjrh/basicecon.doc

Week 1: Revision of Matrix Algebra and ordinary least squares & OLS in matrix form.

http://staff.bath.ac.uk/hssjrh/Matrix algebra.doc

http://staff.bath.ac.uk/hssjrh/Introductory
Lecture.doc

http://staff.bath.ac.uk/hssjrh/matrix
differentiation.doc

http://staff.bath.ac.uk/hssjrh/EC1L3.doc

In this lecture too we will begin to work with STATA. This – or on occasion RATS – will be a regular feature of the lectures

Week 2: Further revision + new material: Goodness of fit, including F tests, ARCH, Jarque-Bera, Ramsey Reset, http://staff.bath.ac.uk/hssjrh/EC1L4.doc.

Week 3: Serial Correlation & simultaneous equations, revisited, the GLS estimator all with the emphasis of matrix algebra.

A new revised lecture on serial correlation and then the original, followed by one on simultaneous equation bias.

http://staff.bath.ac.uk/hssjrh/Revised lecture serial correlation.doc

http://staff.bath.ac.uk/hssjrh/ECLSERCO.doc http://staff.bath.ac.uk/hssjrh/Lsimul.doc

Week 4:

See too a video of this lecture: http://wms.bath.ac.uk/live/Economics/Monte_Carlo_Simulation001.wmv

Week 5: Errors in variables, measurement errors, GMM estimators and
instrumental variable estimation http://staff.bath.ac.uk/hssjrh/stoch.doc http://staff.bath.ac.uk/hssjrh/GMM.doc** **

Week 6: Seemingly Unrelated Regressions http://staff.bath.ac.uk/hssjrh/SUR.Doc

Week 7: Maximum Likelihood Estimation. http://staff.bath.ac.uk/hssjrh/MAXL.doc

Week 8: Cramer Rao Theorem. http://staff.bath.ac.uk/hssjrh/mlplus.doc

Week 9: Binomial probit & logit
http://staff.bath.ac.uk/hssjrh/PROBIT.doc http://staff.bath.ac.uk/hssjrh/plplus.doc

Week 10: Further developments in Stationarity, Cointegration &
Error Correction Models: http://staff.bath.ac.uk/hssjrh/coint.doc

http://staff.bath.ac.uk/hssjrh/Trend
Stationarity.doc also for an interview with Engle and Granger
as they won the Nobel Prize, discusses their work: http://nobelprize.org/nobel_prizes/economics/laureates/2003/engle-interview.html** PLEASE SEE TYPED
NOTES FOR THE UPDATED LECTURE. ALSO for something on Phillips-Perron tests: **http://staff.bath.ac.uk/hssjrh/Phillips
Perron.pdf

Week 11: The Problem of Weak Instruments:

http://pubs.amstat.org/doi/pdf/10.1198/073500102288618658

http://staff.bath.ac.uk/hssjrh/Weak
Instruments.doc

**TYPED LECTURE NOTES:**

http://staff.bath.ac.uk/hssjrh/TYPED Lecture 2 OLS.pdf

http://staff.bath.ac.uk/hssjrh/TYPED Lecture 3 F test.pdf

http://staff.bath.ac.uk/hssjrh/TYPED Lecture 4 Serial Correlation.pdf

http://staff.bath.ac.uk/hssjrh/TYPED
Lecture 6 Stochastic Regressions.pdf

http://staff.bath.ac.uk/hssjrh/TYPED
Lecture 7 Seemingly_Unrelated Regressions.pdf

http://staff.bath.ac.uk/hssjrh/TYPED
Lecture 8 Maximum Likelihood.pdf

http://staff.bath.ac.uk/hssjrh/TYPED
Lecture 9 Probit & Logit.pdf

http://staff.bath.ac.uk/hssjrh/TYPED
Lecture 10 Trend Stationarity.pdf

http://staff.bath.ac.uk/hssjrh/Phillips Perron.pdf

http://staff.bath.ac.uk/hssjrh/TYPED
Lecture 11 Weak Instruments.pdf

**Classes:
will focus on STATA**

**For a video introduction see: **http://wms.bath.ac.uk/live/Economics/A_guide_to_Stata.wmv

**And for the programs in the above in a WORD
file see: http://staff.bath.ac.uk/hssjrh/stata_video_programs.doc**

**Notes on
STATA see:**

**For notes
on STATA see:**

http://staff.bath.ac.uk/hssjrh/STATA_DICTIONARY.doc

http://staff.bath.ac.uk/hssjrh/stataguide.doc

http://www.duke.edu/~skolenik/

**STATA**** ON**

http://www.ats.ucla.edu/stat/stata/notes3/default.htm

http://www.ats.ucla.edu/stat/stata/webbooks/reg/default.htm

For notes on RATS see: http://staff.bath.ac.uk/hssjrh/RATSguide1.doc
ALSO For examples of RATS programs which you are to block copy and run see: http://staff.bath.ac.uk/hssjrh/RATSEG.doc