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Michigan State University

Department of Agricultural, Food and Resource Economics


AFRE835, Introductory Econometrics
Spring 2016

Instructor: Songqing Jin


Office: 211F, Morrill Hall of Agriculture
Phone: 353-4522
E-Mail: jins@msu.edu

Lecture: Monday and Wednesday, 10:20-11:40 am


Room 48, Morrill Hall of Agriculture

Office Hours: Monday and Wednesday, 1:30-2:30 am, or by appointment

Course Materials: Accessible through d2l.msu.edu.

General Description:

This is a masters-level econometrics course. The purpose of the course is to provide students
with a core set of empirical skills to test economic theories and to address real-world economic
problems. Much of the underlying statistical theory and estimation techniques will be covered,
but the emphasis of the course will be placed on the empirical applications with a focus on model
specification, estimation, testing, and interpretation of results. Topics to be covered in this course
are equivalent to those covered in a Ph.D. level econometrics sequences (for non-econometric
major) offered in a standard economic department, however, the materials in this course are
taught at a much more basic level.

Course Objective:

Students will learn how to specify, estimate, test, and interpret econometric models in various
applied settings, first under standard assumptions and second when some of the standard
assumptions are violated. Applications focus on problems faced by applied economists analyzing
cross sectional and panel data. After the course, students will have the necessary knowledge and
tools to understand, interpret, and evaluate most of the empirical work published in empirical
economic journals.

This is a course in applied econometrics. The main objective of the course is to introduce
students to the practice of econometrics in applied research. However, this cannot be
accomplished without paying due attention to the theory of statistical inference. The course will
emphasize development of quantitative, statistical, and analytical skills that can be applied in
empirical research settings. The process of practicing applied econometrics involves
understanding of model specification, data handling, and estimation methods, investigating
sensitivity to assumptions, specification testing, hypothesis testing, and interpretation of results.

Prerequisites:

AEC801 (Math Application in Econ) and AEC802 (Math Statistics for Economists).

Students need some familiarity with introductory probability and statistics, college level calculus
and linear algebra. While the first two lectures will be devoted to review the basics of
probability, statistics and matrix that are essential for the understanding of the lecture materials,
many of the math and statistics techniques used in the course will be reviewed as we go along.

Texts:

Required: Wooldridge, Jeffrey M., Introductory Econometrics: A Modern Approach,


Fifth Edition. South-Western College publishing Company, 2011.

Software:

The only econometrics software that you will see in classrooms and in my lecture notes is Stata.
And it is the only software that I will provide technical support. Therefore, I recommend using
Stata. However, you are free to choose whatever software you would like to use for your
empirical problem sets and your empirical projects. The Stata program is available on several
machines in the agricultural economics computer lab on the fourth floor of the Morrill Hall of
Agri. Students can also purchase Stata 13 at the student rate of $98 for one-year license with
getting started manual or $49 for a small version. Six-month license is also available at even
cheaper rate. The link to the GradPlan is http://www.stata.com/order/new/edu/gradplans/gp-
campus.html. To make sure everyone has the necessary Stata skill to effectively conduct the
empirical work of the course, a Stata review session will be arranged in the computer lab during
a normal lecture time after the 1st empirical problem set is assigned.

Grading:

Your final grade will be based on the following:


Problem sets 20%
Research Paper 20%
Mid-Semester Exam 20%
Final Exam 40%

Problem Sets

Up to six problem sets will be provided throughout the semester. Problem sets will be distributed
roughly every week and a half throughout the semester. You will have more than 10 days to
complete each of the problem sets. I will not accept late problem sets.
Most of the problem sets will require estimation of econometric models and analysis of data.
Students are encouraged to work together on problem sets but each person must turn in his/her
own written report.

Problem sets will expose students to a variety of methods and data types. I will provide the data
and ask a variety of questions related to the modeling process, hypothesis testing, and/or
economic interpretation. Students will perform the analysis and write a short report describing
the results of the analysis and answering the questions.

Please note that problem set grades depend on presentation as well as the correctness of results.
Do not just copy computer printouts in your answers. Only relevant information should be
provided and that should be organized properly into tables or integrated into the text.

Research Paper

There is also a research paper requirement. Students choose a research topic and write a research
proposal. The research must involve applied econometric data analysis of a question in
economics, but apart from that you are free to pick any topic and research question desired. The
paper will involve original empirical work, as well as a critical reading of a few pertinent
articles related to the question. A 1-page proposal outlining the topic, problem to be addressed,
hypothesis, empirical method, data and the expected results is due in the first class after the
Spring Break.

The research paper is designed to get you to think in depth about you thesis work or some other
publishable research. There is no right or wrong about the choice of econometric method.
Different research problems and data sets require different empirical methods. And the grade of
your paper will not be based on which empirical method is chosen. However, only presenting
results based on descriptive analysis is not acceptable. At minimum, the empirical exercise
should involve real data estimation and hypothesis testing. The length of your final paper should
not be longer than 14 pages of double-spaced type text (excluding cover sheet, tables and
figures, and references).

Exam schedule

There will be a mid-semester exam and a final exam for this course. The mid-semester exam will
be scheduled on Wed March 4 from 10:20am-11:50am. The final exam is scheduled for
Wednesday May 6 from 10:00-12:00 noon. The final exam will be comprehensive.
Course Outline:
No. Lectures Topics Reading Problem set (PS)
time
1 Jan 11th Introduction and course overview Chp1; Syllabus
2,3 Jan 13th, Review basic probability, statistics, and matrix Appendices B-D PS1 given
20st algebra on Jan 20st
Classical linear regression model under standard assumptions (8 lectures)
4 Jan 25th Two variable linear regression, ordinary least square Chp2, and Appendix C4:
(OLS), Method of moments, goodness of fit (R2), p768
properties of OLS estimates
5 Jan 27th Stata review session Handout PS1 due

6 Feb 1nd Multiple regression: Estimation and properties of Chp3, Appendix E PS2 given
OLS estimates. Classical assumptions.
7 Feb 3th Hypothesis testing, confidence intervals, Test for Chp4
structural change
8 Feb 8th Function form and interpretation of results, Adjusted- Chp6
R2
th
9 Feb 10 Dummy variable Chp7
Classical Linear Regression Model when standard assumptions do not hold (6 lectures)
10, 11 Feb 15th, Heteroscedasticity Definition, causes, Chp8 PS2 due, PS3 given
17th consequences, detection, corrections, Generalized
Least Square (GLS)
th
12, 13 Feb 22 , Autocorrelation - Definition, causes, consequences, Chp12 (p.408-427) PS3 due, PS4 given
24th detection, Corrections, GLS & FGLS
Feb 29th Review for mid-term Handout
Mar 2nd Mid-term Exam (8:15 9:45am)
Spring Break (Mar 7th Mar 11th)
th
14 Mar 14 Multicollinearity - Definition, causes, consequences, W (p. 95-99) 1-page proposal
detection, solutions due
15,16 Mar 16th, Endogeneity Definition, causes & consequences, Chp15, Chp3 (p.86-92) PS4 due on the 21st
st
21 Instrumental Variable (IV) and Two Stage Least PS5 given on the
Square (2SLS) 21st

17, 18 Mar 23rd, Panel Analysis - Pooled regression, differencing, Chp13-14


28th fixed effect, random effect model
19,20 Mar 30th, Simultaneous-equation models Chp16 PS5 due on the 4th
Apr 4th Seemingly unrelated regression (SUR) PS6 given on the
Identification 4th
21, Apr 6th, Quantitative Model Linear probability, Probit, Chp17
22, 23 11th , 13th Logit, and Tobit model, Heckman Selection Model
24 Apr 18th Dynamic econometrics model - Distributed lags, Chp10 and Chp11, Chp18 PS6 due on the 18th
autoregressions, moving average model
25, 26 Apr 20th, Time Series: Stationary, ARIMA Processes, Chp18
25th multivariate time series and co-integration
Apr 27th Review for final Term project due
May 4th Final Exam (10am-12pm), Room 48, Ag Hall

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