14.32 | Spring 2007 | Undergraduate
Econometrics

Readings

Texts

Wooldridge, Jeffrey M. Introductory Econometrics: A Modern Approach. 3rd ed. Mason, OH: Thomson/South-Western, 2006. ISBN: 9780324289787.

Goldberger, Arthur S. A Course in Econometrics. Cambridge, MA: Harvard University Press, 1991. ISBN: 9780674175440.

DeGroot, Morris H., and Mark J. Schervish. Probability and Statistics. 3rd ed. Boston, MA: Addison-Wesley, 2001. ISBN: 9780201524888.

Wooldridge is the main text. The material in Goldberger is more advanced and optional. DeGroot and Schervish is a recommended text for statistics review. The lecture notes are unavailable.

The course consists of parts 1 (A, B, and C) and 2 (D, E, F, and G).

TOPIC # TOPICS Readings
A. Review of probability and statistics
1 Probability and distribution

Lecture note 1: Probability and distribution

Lecture note 2: Expectation and moments

Wooldridge. Appendix B.

Goldberger. Chapters 1-7.

DeGroot. Chapters 1-5.

Burtless, Gary. “Are Targeted Wage Subsidies Harmful? Evidence from a Wage Voucher Experiment.” Industrial and Labor Relations Review 39 (October 1985): 105-111.

2 Expectation and moments
B. Review of statistical inference
3 Sampling distributions and inference

Lecture note 3: Sampling distributions and inference

Lecture note 4: Approximate [asymptotic] distribution of the sample mean

Lecture note 5: Confidence intervals

Wooldridge. Appendix C.

Goldberger. Chapters 8-10.

DeGroot. Chapters 6-8.

Woodbury, S. A., and R. Spiegelman. “Bonuses to Workers and Employers to Reduce Unemployment: Randomized Trials in Illinois.” American Economic Review 77, no. 4 (September 1987): 513-530.

4 The Central Limit theorem (Asymptotic distribution of the sample mean)
5 Confidence intervals
C. Regression basics
6 Conditional expectation functions, bivariate regression

Lecture note 6: Bivariate regression

Lecture notes 7 and 8: Sampling distribution of regression estimates

Lecture note 9: Residuals, fitted values, and goodness of fit

Wooldridge. Chapters 1-5.

Goldberger. Chapters 13-16.

7 Sampling distribution of regression estimates; Gauss-Markov theorem
8 How Classical assumptions are used; asymptotic distribution of the sample slope
9 Residuals, fitted values, and goodness of fit
D. Multivariate regression
10 Regression, causality, and control; anatomy of multivariate regression coefficients

Lecture note 10: Introduction to multivariate regression

Lecture note 11: Multivariate regression (cont.)

Lecture note 12a: Using multivariate regression

Lecture note 12b: Regression analysis of “Natural Experiments” - the minimum wage controversy

Wooldridge. Chapters 6-7 and 19.

Goldberger. Chapters 17-24.

Krueger, A. “How Computers Have Changed the Wage Structure: Evidence from Micro Data.” Quarterly Journal of Economics 108, no. 1 (February 1993): 33-60.

DiNardo, J., and J. S. Pischke. “The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?” The Quarterly Journal of Economics 112, no. 1 (February 1997): 291-303.

Krueger, A., and S. B. Dale. “Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables.” The Quarterly Journal of Economics 117 (November 2002): 1491-1529.

Card, David E., and Alan B. Krueger. Myth and Measurement: The New Economics of the Minimum Wage. Princeton, NJ: Princeton University Press, 1995, chapters 1 to 4. ISBN: 9780691048239.

11 Omitted variables formula, short vs. long regressions
12a Dummy variables and interactions; testing linear restrictions using F-tests
12b Regression analysis of natural experiments, differences-in-differences
E. Inference problems - heteroscedasticity and autocorrelation
13a Heteroscedasticity, consequences of; weighted least squares; the linear probability model

Lecture note 13a: Heteroscedasticity, linear probability models

Lecture note 13b: Serial correlation

Wooldridge. Chapters 8 and 12.

Goldberger. Chapters 27-28.

Freeman, R., and A. Castillo-Freeman. “When the Minimum Wage Really Bites: The Effect of the US-Level Minimum on Puerto Rico.” In Immigration and the Work Force: Economic Consequences for the United States and Source Areas. Edited by G. Borjas and R. Freeman. Chicago, IL: University of Chicago Press, 1992. ISBN: 9780226066332.

Graddy, K. “Testing for Imperfect Competition at the Fulton Fish Market.” RAND Journal of Economics 26, no. 1 (Spring 1995): 75-92.

13b Serial correlation in time series, consequences of; quasi-differencing; common-factor restriction; Durbin-Watson test for serial correlation
F. Instrumental variables, simultaneous equations models, measurement error
14a Using IV to solve omitted-variables problems

Lecture note 14: Instrumental variables for omitted-variables problems

Wooldridge. Chapter 15.

Goldberger. Chapter 31.

Angrist, J. “Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records.” American Economic Review 80, no. 3 (June 1990): 313-336.

Angrist, J., and A. Krueger. “Does Compulsory School Attendance Affect Schooling and Earnings?” Quarterly Journal of Economics 106, no. 4 (November 1991): 979-1014.

Angrist, J., and W. E. Evans. “Children and Their Parents’ Labor Supply: Evidence from Exogenous Variation in Family Size.” American Economic Review 88 (June 1998): 450-477.

Lecture note 14b: IV and measurement error

Ashenfelter, O., and A. Krueger. “Estimates of the Economic Returns to Schooling from a New Sample of Twins.” American Economic Review 84, no. 5 (December 1994): 1157-1174.

Lecture note 14c: Regression-discontinuity

Angrist, J., and V. Lavy. “Using Maimonides Rule to estimate the Effects of Class Size on Scholastic Achievement.” Quarterly Journal of Economics 114, no. 2 (May 1999): 533-575.

14b Measurement error (Time-permitting)
14c Regression-discontinuity designs (Time-permitting)
G. Simultaneous equation models
15

Simultaneous equations models I

  • The use of structural models
  • Simultaneous equations bias
  • The identification problem
  • The structure and the reduced form
  • Indirect least squares

Lecture note 15: Simultaneous equations models - motivation and identification

Lecture note 16: Simultaneous equations models - estimation

Wooldridge. Chapter 16.

Goldberger. Chapters 32-34.

Angrist, J., G. Imbens, and K. Graddy. “The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish.” Review of Economic Studies 67, no. 3 (July 2000): 499-527.

16

Simultaneous equations models II

  • IV for the SEM
  • Two-stage least squares
  • Sampling variance of 2SLS estimates
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Spring 2007