Economics 583: Econometric Theory I

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Syllabus

Fall 2008
Office hours: M 11-12; Tu 4-5

Eric Zivot
418 Condon Hall
543-6715

Last updated: November 20, 2008

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

  • Consistency and the Law of Large Numbers (LLN)
  • Asymptotic normality and the Central Limit Theorem (CLT)
  • Asymptotics for nonlinear functions (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. Zivot, E. (2007). Lecture notes (primer on asymptotics). Updated: September 23, 2008.
  5. Zivot, E. (2007). Class slides part 1 (LLNs and CLTs). Updated: September 23, 2008.
  6. Zivot, E (2006). Class slides part 2. (Time series Concepts). Updated: October 10, 2006.
  7. Zivot, E (2008). Tablet PC notes for lecture 1
  8. Zivot, E (2008). Tablet PC notes for lecture 2
  9. Zivot, E (2008). Tablet PC notes for lecture 3
  10. Zivot, E (2008). Tablet PC notes for lecture 4
  11. Zivot, E (2008). Tablet PC notes for lecture 5

Programs and Examples

  1. asymptotics.ssc.  S-PLUS script file illustrating consistency and asymptotic normality
  2. asymptotics.r. R script file illustrating consistency and asymptotic normality
  3. 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. (2006). Class slides on single equation linear GMM estimation. Updated: October 21, 2006.
  4. Zivot, E. (2006). Class slides on hypothesis testing in single equation linear GMM. Updated: November 1, 2006.
  5. Zivot, E. (2006). Class slides on GMM examples. Updated: November 1, 2006.
  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. Davidson, R. and J. MacKinnon (2004). Econometric Theory and Methods, chapter 9, sections 1 - 4.
  9. Newey, W. (1985). "Generalized method of moments specification testing," Journal of Econometrics, 29, 229-256.
  10. Newey, W. and West, K. (1987). "Hypothesis testing with efficient method of moment estimators," International Economic Review, 28, 777-787.
  11. Hall, A. (1999). "Hypothesis Testing in Models Estimated by GMM," chapter 4 in Matyas (ed.) Generalized Method of Moments.
  12. Zivot, E (2008). Tablet PC notes for lecture 6
  13. Zivot, E (2008). Tablet PC notes for lecture 7
  14. Zivot, E (2008). Tablet PC notes for lecture 8
  15. Zivot, E (2008). Tablet PC notes for lecture 9
  16. Zivot, E (2008). Tablet PC notes for lecture 10

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 (2002). "Instrumental Variables and GMM: Estimation and Testing, Boston College Economics Working Paper 545.
  6. Cliff, M. (2003).  "GMM and MINZ Program Libraries for Matlab":  gmm.zip, minz.zip, gmmdoc.pdf.

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. (2006). Class slides on GMM with serial correlation. Updated: October 28, 2008.
  4. Zivot, E (2008). Tablet PC notes for lecture 11

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. (2006). Class slides on nonlinear GMM. Updated: November 5, 2008.
  4. Zivot, E. (2006). Powerpoint examples. Updated: November 8, 2006.
  5. Zivot, E. (2006). Class slides on asymptotics in nonlinear GMM. Updated: November 5, 2008.
  6. Greene, W. (2003). Econometric Analysis, chapter 18.
  7. Davidson, R. and J. MacKinnon (2004). Econometric Theory and Methods, chapter 9, section 5.
  8. Hansen, L. and K. Singleton (1982), "Generalized instrumental variables estimation of nonlinear rational expectation models," Econometrica.
  9. 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.
  10. Zivot, E (2008). Tablet PC notes for lecture 12
  11. Zivot, E (2008). Tablet PC notes for lecture 13
  12. Zivot, E (2008). Tablet PC notes for lecture 14

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. Cliff, M. (2003). "GMM and MINZ Program Libraries for Matlab".
  4. Chen, C., and P. Knez (1996). "Portfolio performance measurement: theory and application," Review of Financial Studies, 9, 511-59.
  5. Harvey, C. (1991). "The world price of covariance risk," Journal of Finance, 46, 111-57.
  6. Melino, A., and S.M. Turnbull (1990). "Pricing foreign currency options with stochastic volatility," Journal of Econometrics, 45, 239-66.
  7. Eichenbaum, M. (1989). "Some empirical evidence on the production level and production cost smoothing models of inventory adjustment," American Economic Review, 79, 853-64.
  8. Ogaki, M. (1999). "GMM Estimation Techniques," chapter 8 in Matyas (ed.) Generalized Method of Moments.
  9. 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. (2005). Lecture notes on maximum likelihood. Updated: November 20, 2005.
  • Zivot, E. (2006). Class slides on maximum likelihood. Updated: November 15, 2008.
  • Zivot, E. (2008). Class slides on testing in maximum likelihood. Updated: November 17, 2008.
  • Buse, A. (1982). "The Likelihood Ratio, Wald, and Lagrange Multiplier Tests: An Expository Note", American Statistician.
  • Zivot, E (2008). Tablet PC notes for lecture 15
  • Zivot, E (2008). Tablet PC notes for lecture 16
  • Zivot, E (2008). Tablet PC notes for lecture 17

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 27, 2006.
  3. Zivot, E. (2006). Class slides on examples of multi-equation linear GMM. Updated: November 27, 2006.
  4. Zivot, E. (2006). Class slides on GMM with panel data. Updated: December 6, 2006.
  5. Zivot, E. (2006). Class slides on GMM estimation of dynamic panel data models. Updated: December 6, 2006.
  6. 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.
  7. Ahn, S.C., and P. Schmidt (1999). "Estimation of Liner Panel Data Models Using GMM," chapter 8 in Matyas (ed.) Generalized Method of Moments.

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.

Instrumental Variables Regression 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: November 22, 2006.
  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.

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.

Simulated Method of Moments

Readings: Theory

  1. Davidson, R. and J. MacKinnon (2004). Econometric Theory and Methods, chapter 9, section 6.

 

Readings: Applications

  1. Zivot, E. and J. Wang (2006). Modeling Financial Time Series with S-PLUS, 2nd Edition, chapter 22 "Seminonparametric Conditional Density Models"
  2. Zivot, E. and J. Wang (2006). Modeling Financial Time Series with S-PLUS, 2nd Edition, chapter 23 "Efficient Method of Moments"

Final Exam