Economics 583: Econometric Theory I

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Syllabus

Winter 2013
Office hours: MF 11-12;

Eric Zivot
348 Savery Hall
543-6715

Last updated: February 25, 2013

Note: The following topics will be covered during the course. The order of the topics, however, may change. I will indicate in class the topics to be covered during a given week.

Large Sample Theory

  • The Law of Large Numbers (LLN) and consistency of estimators
  • The Central Limit Theorem (CLT) and asymptotic normality of estimators
  • Asymptotics for nonlinear functions of estimators (delta method)
  • Asymptotics for time series
  • Applications to the linear regression model
  • Evaluating asymptotic approximations: Monte Carlo simulations and the bootstrap

Readings

  1. Hayashi, F. (2000). Econometrics, chapter 2, sections 1-5.
  2. Hall, A. (2005). Generalized Method of Moments, chapter 1, section 4.
  3. Greene, W. (2003). Econometric Analysis, Appendix D.
  4. Lafaye de Micheaux, P. and Liquet, B. (2009). "Understanding Convergence Concepts: A Visual-Minded and Graphical Simulation-Based Approach," The American Statistician, Vol. 63(2), 173-178.
  5. Zivot, E. (2013). Lecture notes (primer on asymptotics). Updated: January 7, 2013.
  6. Zivot, E. (2013). Class slides part 1 (LLNs and CLTs). Updated: January 14, 2013.
  7. Zivot, E (2013). Class slides part 2. (Time series Concepts). Updated: January 14, 2013.
  8. Zivot, E (2013). Class slides part 3. (Hypothesis Testing). Updated: January 13, 2013
  9. Zivot, E (2013). Tablet PC notes for lecture 1
  10. Zivot, E (2013). Tablet PC notes for lecture 2
  11. Zivot, E (2013). Tablet PC notes for lecture 3
  12. Zivot, E (2013). Tablet PC notes for lecture 4

Programs and Examples

  1. asymptotics.r. R script file illustrating consistency and asymptotic normality
  2. asympoticsPrimerPowerPoint.pdf.  Powerpoint examples. Updated: September 23, 2008.

GMM for Single Equation Linear Models

  • Endogeneity in econometric models
  • Single equation linear GMM
  • Large sample properties
  • Hypothesis testing

Readings: Theory

  1. Hayashi, F. (2000). Econometrics, chapters 3
  2. Hall, A. (2005). Generalized Method of Moments, chapter 2.
  3. Zivot, E. (2013). Class slides on single equation linear GMM estimation. Updated: January 23, 2013.
  4. Zivot, E. (2013). Class slides on hypothesis testing in single equation linear GMM. Updated: January 30, 2013.
  5. Zivot, E. (2010). Class slides on GMM examples. Updated: October 27, 2010.
  6. Zivot, E. and J. Wang (2006). Modeling Financial Time Series with S-PLUS, 2nd Edition, chapter 21 "Generalized Method of Moments" , sections 1-5.
  7. Greene, W. (2003). Econometric Analysis, chapter 10, section 4.
  8. Newey, W. (1985). "Generalized method of moments specification testing," Journal of Econometrics, 29, 229-256.
  9. Newey, W. and West, K. (1987). "Hypothesis testing with efficient method of moment estimators," International Economic Review, 28, 777-787.
  10. Hall, A. (1999). "Hypothesis Testing in Models Estimated by GMM," chapter 4 in Matyas (ed.) Generalized Method of Moments.
  11. Zivot, E (2013). Tablet PC notes for lecture 5
  12. Zivot, E (2013). Tablet PC notes for lecture 6
  13. Zivot, E (2013). Tablet PC notes for lecture 7

Readings: Applications

  1. Zivot, E. and J. Wang (2006). Modeling Financial Time Series with S-PLUS, 2nd Edition, chapter 21 "Generalized Method of Moments", sections 4-5.
  2. Blackburn, M. and D. Neumark (1992).  "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials, Quarterly Journal of Economics, 107, 1421-1436.
  3. Campbell, J. and G. Mankiw (1990). "Permanent Income, Current Income, and Consumption," Journal of Business and Economic Statistics 8, 265-279.
  4. Griliches, Z. (1976). "Wages of Very Young Men," Journal of Political Economy, 84, S69-S85.
  5. Baum, C.F., M.E., Schaffer, and S. Stillman (2003). "Instrumental Variables and GMM: Estimation and Testing, The Stata Journal, 3(1), 1-31.
  6. Cliff, M. (2003).  "GMM and MINZ Program Libraries for Matlab":  gmm.zip, minz.zip, gmmdoc.pdf.
  7. Kostas Kyriakoulis's GMM Toolbox for MATLAB.
  8. Chausse, P. (2009). "Computing Generalized Empirical Likelihood and Generalized Method of Moments with R".

GMM with Serial Correlation

  • Stationary time series and the Wold decomposition
  • LLNs and CLTs for linear time series processes
  • Heteroskedasticity and autocorrelation consistent covariance matrix estimation

Readings: Theory

  1. Hayashi, Econometrics, chapter 6 (especially section 6)
  2. Hall, Chapter 3, Section 5.
  3. Zivot, E. (2013). Class slides on GMM with serial correlation. Updated: February 4, 2013.
  4. Zivot, E (2013). Tablet PC notes for lecture 8

Readings: Applications

  1. Bekaert, G., and R. Hodrick (1993). "On Biases in the Measurement of Foreign Exchange Risk Premiums," Journal of International Money and Finance, 12, 115-138.

Nonlinear GMM

  • Nonlinear GMM
  • Computation
  • Examples
  • Extremum estimators
  • Consistency
  • Asymptotic Normality
  • Hypothesis testing

Readings: Theory

  1. Hayashi, Econometrics, chapter 7
  2. Hall, A. (2005). Generalized Method of Moments, chapter 1, sections 1-3; chapter 3; chapter 5.
  3. Zivot, E. (2013). Class slides on nonlinear GMM. Updated: February 11, 2013.
  4. Zivot, E. (2010). Powerpoint examples. Updated: November 8, 2010.
  5. Zivot, E. (2013). Class slides on asymptotics in nonlinear GMM. Updated: February 13, 2013.
  6. Greene, W. (2003). Econometric Analysis, chapter 18.
  7. Hansen, L. and K. Singleton (1982), "Generalized instrumental variables estimation of nonlinear rational expectation models," Econometrica.
  8. Newey, W.K. and D. McFadden (1994). "Large Sample Estimation and Hypothesis Testing", Chapter 36 in Handbook of Econometrics, Volume IV, Edited by R.F Engle and D.L. McFadden.

Readings: Applications

  1. Hall, A. (2005). Chapter 9.
  2. Zivot, E. and J. Wang (2006). Modeling Financial Time Series with S-PLUS, 2nd Edition, chapter 21 "Generalized Method of Moments" , sections 6 and 7.
  3. Chausse, P. (2009). "Computing Generalized Empirical Likelihood and Generalized Method of Moments with R".
  4. Cliff, M. (2003). "GMM and MINZ Program Libraries for Matlab".
  5. Chen, C., and P. Knez (1996). "Portfolio performance measurement: theory and application," Review of Financial Studies, 9, 511-59.
  6. Harvey, C. (1991). "The world price of covariance risk," Journal of Finance, 46, 111-57.
  7. Melino, A., and S.M. Turnbull (1990). "Pricing foreign currency options with stochastic volatility," Journal of Econometrics, 45, 239-66.
  8. Eichenbaum, M. (1989). "Some empirical evidence on the production level and production cost smoothing models of inventory adjustment," American Economic Review, 79, 853-64.
  9. Ogaki, M. (1999). "GMM Estimation Techniques," chapter 8 in Matyas (ed.) Generalized Method of Moments.
  10. Mankiw, G., J. Rotemberg, and L. Summers (1985), "Intertemporal substitution in macroeconomics," Quarterly Journal of Economics.

Programs and Examples

Maximum Likelihood Estimation

  • Definition of MLE
  • Finite sample properties
  • Asymptotic properties
  • Comparison with GMM

Readings: Theory

  • Hayashi, Chapter 1, Section 5 (revised version); Chapter 7
  • Zivot, E. (2009). Lecture notes on maximum likelihood. Updated: November 23, 2009.
  • Zivot, E. (2013). Class slides on maximum likelihood. Updated: February 20, 2013.
  • Zivot, E. (2011). Class slides on testing in maximum likelihood. Updated: February 25, 2013.
  • Buse, A. (1982). "The Likelihood Ratio, Wald, and Lagrange Multiplier Tests: An Expository Note", American Statistician.

Multi-Equation Linear GMM

  • General Multi-equation framework
  • Special cases: SUR, 3SLS
  • Panel data
    • Random effects
    • Fixed effects
    • Dynamic panel data models

Readings: Theory

  1. Hayashi, F. (2000). Econometrics, chapters 4 and 5
  2. Zivot, E. (2006). Class slides on multi-equation linear GMM. Updated: November 21, 2011.
  3. Zivot, E. (2006). Class slides on examples of multi-equation linear GMM. Updated: November 21, 2011.
  4. Zivot, E. (2006). Class slides on GMM with panel data. Updated: November 28, 2011.
  5. Zivot, E. (2006). Class slides on GMM estimation of dynamic panel data models. Updated: November 30, 2011.
  6. Zivot, E (2009). Tablet PC notes for lecture 16
  7. Zivot, E (2009). Tablet PC notes for lecture 17
  8. Ray, S., Savin, N.E., and Tiwari, A. (2009) "Testing CAPM Revisited".
  9. Arellano, M. and S. Bond (1991). "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, 58, 277-297.

Readings: Applications

  1. Mankiw, G., D. Romer, and D. Weil (1992). "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, 107, 407-437.
  2. Islam, N. (1995). "Growth Empirics: A Panel Data Approach," Quarterly Journal of Economics, 110, 1127-1170.

GMM with Weak Instruments

  • Motivating examples
  • Staiger-Stock weak instrument asymptotics
  • Weak instrument robust hypothesis tests

Readings: Theory

  1. Zivot, E. (2006). Class slides on instrumental variables with weak instruments. Updated: December 5, 2011.
  2. Staiger, D. and Stock, J.H. (1997). "Instrumental variables regression with weak instruments," Econometrica, 65, 557-586.
  3. Zivot, E., Startz, R., and Nelson, C.R. (1998). "Valid confidence intervals and inference in the presence of weak instruments," International Economic Review.
  4. Wang, J. and E. Zivot (1998). "Inference on structural parameters in instrumental variables regression with weak instruments," Econometrica, 66(6), 1389-1404.
  5. Kleibergen, F. (2002). "Pivotal statistics for testing structural parameters in instrumental variables regression," Econometrica, 70, 1781-1803.
  6. Moreira, M. (2003). "A conditional likelihood ratio test for structural models," Econometrica, 71(4), 1027-1048.
  7. Stock, J. H. , J. Wright, and M. Yogo (2002). "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments ", Journal of Business and Economic Statistics.
  8. Andrews, D.W.K. and J.H. Stock (2005). "Inference with Weak Instruments," Cowles Foundation Discussion Paper.
  9. Kleibergen, F., and Mavorides (2009). "Weak Instrument Robust Tests in GMM and the New Keynesian Phillips Curve," Journal of Business and Economic Statistics, 27(3), 293-311.

Readings: Applications

  1. Angrist, J.D., and A.B. Krueger (1991). "Does Compulsory School Attendance Affect Schooling and Earnings?" Quarterly Journal of Economics 106, 979-1014.

Final Exam

  • Take home Final Exam.