A Guide to Econometrics

Preface xi Dedication xv Introduction 1(10) What is Econometrics? 1(2) The Disturbance Term 3(1) Estimates and Estimators 4(1) Good and Preferred Estimators 5(6) General Notes 6(4) Technical Notes 10(1) Criteria for Estimators 11(36) Introduction 11(1) Computational Cost 11(1) Least Squares 12(2) Highest R2 14(1) Unbiasedness 15(2) Efficiency 17(1) Mean Square Error (MSE) 18(1) Asymptotic Properties 19(4) Maximum Likelihood 23(1) Monte Carlo Studies 24(3) Adding Up 27(20) General Notes 28(9) Technical Notes 37(10) The Classical Linear Regression Model 47(13) Textbooks as Catalogs 47(1) The Five Assumptions 48(1) The OLS Estimator in the CLR Model 49(11) General Notes 52(4) Technical Notes 56(4) Interval Estimation and Hypothesis Testing 60(21) Introduction 60(1) Testing a Single Hypothesis: the t Test 60(1) Testing a Joint Hypothesis: the F Test 61(2) Interval Estimation for a Parameter Vector 63(3) LR, W, and LM Statistics 66(2) Bootstrapping 68(13) General Notes 70(7) Technical Notes 77(4) Specification 81(26) Introduction 81(1) Three Methodologies 82(3) General Principles for Specification 85(1) Misspecification Tests/Diagnostics 86(4) R2 Again 90(17) General Notes 92(11) Technical Notes 103(4) Violating Assumption One: Wrong Regressors, Nonlinearities, and Parameter Inconstancy 107(22) Introduction 107(1) Incorrect Set of Independent Variables 107(2) Nonlinearity 109(3) Changing Parameter Values 112(17) General Notes 114(9) Technical Notes 123(6) Violating Assumption Two: Nonzero Expected Disturbance 129(4) General Notes 131(2) Violating Assumption Three: Nonspherical Disturbances 133(24) Introduction 133(1) Consequences of Violation 134(2) Heteroskedasticity 136(3) Autocorrelated Disturbances 139(18) General Notes 144(7) Technical Notes 151(6) Violating Assumption Four: Measurement Errors and Autoregression 157(23) Introduction 157(2) Instrumental Variable Estimation 159(1) Errors in Variables 160(3) Autoregression 163(17) General Notes 166(6) Technical Notes 172(8) Violating Assumption Four: Simultaneous Equations 180(25) Introduction 180(2) Identification 182(4) Single-equation Methods 186(4) Systems Methods 190(15) General Notes 191(6) Technical Notes 197(8) Violating Assumption Five: Multicollinearity 205(13) Introduction 205(1) Consequences 206(2) Detecting Multicollinearity 208(2) What to Do 210(8) General Notes 212(5) Technical Notes 217(1) Incorporating Extraneous Information 218(12) Introduction 218(1) Exact Restrictions 218(1) Stochastic Restrictions 219(1) Pre-test Estimators 219(2) Extraneous Information and MSE 221(9) General Notes 223(5) Technical Notes 228(2) The Bayesian Approach 230(18) Introduction 230(1) What Is a Bayesian Analysis? 230(4) Advantages of the Bayesian Approach 234(1) Overcoming Practitioners' Complaints 235(13) General Notes 238(5) Technical Notes 243(5) Dummy Variables 248(11) Introduction 248(1) Interpretation 249(1) Adding Another Qualitative Variable 250(2) Interacting with Quantitative Variables 252(1) Observation-specific Dummies 253(6) General Notes 254(3) Technical Notes 257(2) Qualitative Dependent Variables 259(22) Dichotomous Dependent Variables 259(3) Polychotomous Dependent Variables 262(1) Ordered Logit/Probit 263(1) Count Data 263(18) General Notes 264(8) Technical Notes 272(9) Limited Dependent Variables 281(20) Introduction 281(2) The Tobit Model 283(1) Sample Selection 284(3) Duration Models 287(14) General Notes 289(5) Technical Notes 294(7) Panel Data 301(18) Introduction 301(2) Allowing for Different Intercepts 303(2) Fixed versus Random Effects 305(2) Short Run versus Long Run 307(1) Long, Narrow Panels 308(11) General Notes 309(6) Technical Notes 315(4) Time Series Econometrics 319(39) Introduction 319(1) ARIMA Models 320(1) VARs 321(2) Error-correction Models 323(2) Testing for Unit Roots 325(1) Cointegration 326(32) General Notes 328(12) Technical Notes 340(18) Forecasting 358(14) Introduction 358(1) Causal Forecasting/Econometric Models 359(1) Time Series Analysis 360(1) Forecasting Accuracy 361(11) General Notes 363(7) Technical Notes 370(2) Robust Estimation 372(17) Introduction 372(1) Outliers and Influential Observations 373(1) Robust Estimators 374(2) Non-parametric Estimation 376(13) General Notes 378(4) Technical Notes 382(7) Applied Econometrics 389(29) Introduction 389(1) The Ten Commandments of Applied Econometrics 390(7) Getting the Wrong Sign 397(5) Common Mistakes 402(2) What Do Practitioners Need to Know? 404(14) General Notes 405(11) Technical Notes 416(2) Appendix A: Sampling Distributions, the Foundation of Statistics 418(5) Appendix B: All about Variance 423(6) Appendix C: A Primer on Asymptotics 429(7) Appendix D: Exercises 436(80) Appendix E: Answers to Even-numbered Questions 516(28) Glossary 544(6) Bibliography 550(51) Name Index 601(9) Subject Index 610