Econometrics is a field of statistics dealing with applications to economics.

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12
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4answers
657 views

Why do we usually choose to minimize the sum of square errors (SSE) when fitting a model?

The question is very simple: why, when we try to fit a model to our data, linear or non-linear, do we usually try to minimize the sum of the squares of errors to obtain our estimator for the model ...
3
votes
1answer
43 views

Can I do panel regression if all my covariates are time-invariant?

We have a data set where our outcome of interest varies over 10 years, but the explanatory variable of interest and all of the potential confounders are time-invariant. I am quite certain that a panel ...
0
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0answers
18 views

How to compute the expectation of a normally distributed random variable given an imprecise signal?

Given $r\sim\mathcal{N}\left(\bar{r},\frac{1}{\alpha}\right)$ where $0<\bar{r}<1$ and an imprecise signal about $r$, $x_i=r+\epsilon_i$ where ...
3
votes
1answer
44 views

Residual based bootstrap autoregressive series in MATLAB

I have defined the model as follows. Let $$y_1 = 0$$ and $$ y_i = \alpha + \beta y_{i-1} + \epsilon_i $$ for $i_2\ldots i_T$, where $\alpha$ and $\beta$ are the estimated coefficients and ...
1
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0answers
20 views

Regresson Discontinuity - design questions

I am considering a regression discontinuity design (RD) where the "treatment" has a definite sorting rule (below the threshold, you are not fined - above the threshold, you are fined). The outcome I ...
3
votes
2answers
93 views

Does triple interaction need to include all main effect variables?

I have a triple interaction: AxBxD, where A and B are continuous variables and D is a dummy. My regression is Y = A + B + AxB + AxD + AxBxD In this case, do I HAVE TO include BxD also? In theory here ...
1
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0answers
17 views

Migration Flows and Multiple Regression Quadratic Assignment Procedures

I'm a forth year economics student (undergraduate) and last semester I wrote a research paper, with a classmate, in which we analyzed the determinants of interprovincial migration flows in Canada. It ...
-1
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0answers
32 views

Double and single-bisection methods

What is meant by double and single-bisection methods for subjective probability assessment? See, for instance, Garthwaite, P. H. and Dickey, J. M. (1985). Double and single-bisection methods for ...
1
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0answers
46 views

Finding a Random Variable $X$ on the sample space with given cdf

I will state the problem first, then follow through with my work. Q: Suppose that the sample space is given by $S={w_1,w_2,w_3}$ where $w_1,w_2,w_3$ are three states of tomorrow's weather. We have ...
2
votes
1answer
58 views

Best graduate level text for econometric time series?

I am a masters student studying economics. The program that I am attending is extremely quantitative with a heavy focus on econometrics. I am looking for a text on time series analysis. I really ...
2
votes
1answer
32 views

Joint significance test in 2SLS (instrumental variables) regression

I'm trying to implement a joint test of the two coefficients comprising a quadratic term in a 2-stage least squares regression. The quadratic term is endogenous. I'm using ...
3
votes
1answer
37 views

How to use the bunching estimator to estimate the elasticity of taxable income

Today my professor told us about a recent estimator that non-parametrically estimates the elasticity of taxable income. I understood why doing this gets around problems of previous studies that use ...
2
votes
3answers
289 views

Why “modeling volatility” is not an oxymoron?

Firstly, I'm sorry, if my question will come across as simple or even naive, but I have no formal background in statistics and I'm trying my best to learn it as much as I can, among other areas. My ...
3
votes
0answers
25 views

What is the ‘Pile-up Problem’?

In methods of trend-cycle decomposition, what is meant by the 'pile up problem'? How can the pile up problem be detected? Can it be detected by the method of visual inspection? If so, what are the ...
4
votes
1answer
31 views

Basic - Modelling Two Series, one is an index

I'm trying to model two time series. One is a seasonally adjusted # of new jobs number against and index of business development. Its been a long time since I took econometrics, so I'm hoping ...
9
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5answers
265 views

Textbook for Bayesian econometrics

I am looking for a theoretically rigorous textbook on Bayesian econometrics, assuming a solid understanding of frequentist econometrics. I would like to suggest one work per answer, so that ...
1
vote
1answer
42 views

Choosing the right ARIMA model in MATLAB

I have a problem regarding choosing the right model for historical data that I need to forecast. when drawing the ACF and PACf, a clear seasonality appears at lag 24 as you can see in the figure: I ...
5
votes
1answer
43 views

Pre Window Length Selection with Difference-In-Differences

Does there exist a principled way to choose the optimal length of the pre-period in a difference-in-differences model? I imagine there's the usual variance-bias tradeoff from going back too far, but ...
4
votes
1answer
150 views

Why doesn't measurement error in the dependent variable bias the results?

When there is measurement error in the independent variable I have understood that the results will be biased against 0. When the dependent variable is measured with error they say it just affects the ...
8
votes
2answers
203 views

The econometrics of a Bayesian approach to event study methodology

Event studies are widespread in economics and finance to determine the effect of an event on a stock price, but they are almost always based on frequentist reasoning. An OLS regression -- over a ...
1
vote
1answer
99 views

Mean and variance of ranks

Consider rank data 1 to n with two groups, n=n1+n2, how would one test the null that the two groups have equal rank distributions using MOMENTS? (Wilcoxon is not the answer) Is MLE possible to do the ...
3
votes
1answer
36 views

identification of simultaneous equation model

Consider the following SEM can be identified: $$ y_i = x_i \alpha + z_i \beta + u_i\\ z_i = x_i \delta + v_i\\ $$ where we have $$ E[u_i] = E[v_i] = E[u_i x_i] = E[v_i x_i] = 0\\ cov(x_i, u_i v_i) = ...
0
votes
0answers
37 views

Outliers in panel data

I have a panel data with 4 waves. The variable of interest for me is hourly pay which increases on average from wave to wave. I want to drop the observations with hourly pay in the bottom and the top ...
0
votes
1answer
26 views

What Grouping Method To Determine Average Over Lifetime?

I have the following data: When individual 'x' joined a company. As the data is limited to 2 years I do not know the start date of every individual. When individual 'x' left the same company. If this ...
3
votes
1answer
56 views

Using year fixed effects on data with yearly observations

I have a panel data set with yearly observations of various firms over a period of 5 years. I am running a fixed effects model in Stata using xtreg. Is it ...
0
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0answers
19 views

Imputing missing values of predictor for use in Regression Models

I have a panel data set that extends from January 2013 to July 2014. The response variable is complete for the entire period, however all of the predictor variables have values only up to June 2014. ...
2
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0answers
43 views

Relationship while controlling for variables

what does it mean when a question states controlling for other variables. for example I came across this question, Estimate a quadratic relationship between lnhourpay and age, controlling for gender ...
2
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0answers
136 views

Income and price elasticity for multinomial logit/probit and alternative-specific conditional logit/multinomial probit in Stata?

I have a question about estimating income/price elasticity of demand for multinomial logit/probit models in Stata. Lets say I fit a discrete choice model where the outcome is product chosen (4 ...
3
votes
1answer
36 views

Asymptotic variance of GMM with efficient instrument

This question emerged from reading Wooldridge's Econometric Analysis of Cross Section and Panel Data, second edition, section 14.4.3, where the asymptotic distribution of the GMM (Generalized Method ...
2
votes
1answer
42 views

In a two equation system, what is the meaning of the assumption “exogenous X is uncorrelated with ε1ε2”

Assume a triangular system such as \begin{eqnarray*} Y = X'\beta_1 + D\gamma_1 + \varepsilon_1 \\ D = X'\beta_2 + \varepsilon_2 \end{eqnarray*} with $Y$ and $D$ as observed endogenous variables, $X$ ...
7
votes
1answer
442 views

How to use the Hausman test for gender discrimination?

I am trying to estimate the gender wage gap for male and female office workers in a large Swedish company to test whether there is gender discrimination. The Hausman test rejects the null that the ...
1
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2answers
66 views

Panel data methods

My dataset is following: firms=1000, time period=10 years, countries=20, industries=15. I declare in STATA: xtset firmid year I want to control for the ...
0
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1answer
22 views

Principled way of combining time series with different spans and granularity into an econometric model

I want to forecast the price of something given various time series as inputs. The problem is that they are of different frequency (annual, quarterly, monthly, daily) and time periods (the more ...
4
votes
1answer
87 views

Instrumental variables equivalent representation

Let us work with the following structural model: $$y=\mathbf{x_{1i}β}+x_{2i}β_2+\varepsilon_i$$ where $x_{2i}$ is our single endogenous regressor. It turns out that given my instruments and my first ...
2
votes
2answers
176 views

Standard errors of a two stage least squares regression, Stata

I use Stata. I am trying to replicate the ivreg output of a regression performing manually the first stage, predicting the instrument after the first stage and running the second stage regression with ...
1
vote
1answer
64 views

Finding Regression Slope

This question is based on How to derive a regression formula Start with a regression equation: $s_{ij} = \alpha + \beta \bar{s_j} + \epsilon_{ij},$ The goal is to get to this. *Update. I figured ...
0
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0answers
40 views

$Y = \beta_0+\beta_1*X+U$ and $W = \gamma_0+\gamma_1*X+\gamma_2*U$, assume $\gamma_2\neq0$. also given is $E(U|X) = E(U)$ . find $ E(U|W,X)$

$Y = \beta_0+\beta_1*X+U$ and $W = \gamma_0+\gamma_1*X+\gamma_2*U$, assume $\gamma_2\neq0$. also given is $E(U|X) = E(U)$ find $ E(U|W,X)$ and conditions under which $E(U|W=w,X=x)$ is an increasing ...
3
votes
1answer
86 views

Law of Iterated Expectations Explanation

I am having trouble following a short derivation that uses the Law of Iterated Expectations that is found in the answer to another question: How to derive a regression formula I will repeat it here: ...
0
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0answers
30 views

Why is it possible that the White test and the special case of the White test can give different values of $R^2$

In the textbook I am using (Introductory Econometrics: A Modern Approach by Jeffrey M. Wooldridge, 5e), it is implied that the $R^2$ from the regression of residual-squared on all independent ...
0
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0answers
41 views

Fixed Effects at Different Entity and Time Levels

This is a project I'm working on. I have MONTHLY values of X for employees of firms and I want to know how these affect YEARLY values of Y for those firms. The Y values are the same for all ...
3
votes
1answer
172 views

How to derive a regression formula

In this paper: http://www.nber.org/papers/w19774.pdf, (ungated version here) the author spells out the following regression (equation 1 in the paper): $s_{ij} = ...
7
votes
1answer
74 views

How can heteroskedasticity that is only contingent on omitted variables not effect the validity of standard errors?

In the textbook I am using (Introductory Econometrics: A Modern Approach by Jeffrey M. Wooldridge), there is a description that goes, By explicitly stating the homoskedasticity assumption as ...
1
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1answer
82 views

Groupwise heteroskedasticity

I know how to derive the GLS estimator of beta (theoretical GLS), but there a slight change to the question and i am not quite sure how to go about it. A researcher has reason to believe that the ...
0
votes
1answer
31 views

Are VAR and VEC models theoretically neutral?

I have recently been introduced to Vector Autoregression (VAR) and Vector Error Correction (VEC) models in an Econometrics class, where both approaches were presented as a neutral way to test economic ...
1
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0answers
35 views

How to interpret standard errors and t-values in error-correction terms?

When estimating a Vector Error Correction (VEC) model in EViews, the resulting output always shows the error-correction terms together with standard errors and t-values for the included variables, and ...
0
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0answers
25 views

Techniques for comparing two windows of data in a time series

I'm working on a small independent project in R, trying to make my own (very crude) forecasting method. The general idea of the component that is giving me trouble is trying to compare two windows of ...
0
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0answers
38 views

Deriving single linear regression parameters in terms of multiple linear regression parameters

Suppose the true population model is $$\ln(wage) = B_0 + B_1 \cdot education + B_2 \cdot experience + v,$$ where $v$ is the error term. Suppose the model is estimated as $$\ln(wage) = B_3 + B_4 ...
1
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0answers
30 views

Alternative specific conditional logitstic regression with clustering on in individual in panel data: scientifically and computationally reasonable?

My scientific interest is to calculate the price elasticity for an overall set of products (books) in a panel dataset of observations over a 3 year period and I was wondering whether asclogit ...
0
votes
1answer
45 views

Regarding log-normal specification

I'm working with a log-normal regression model. However, some of the dependent variable equal zero (not missing). Can I use an alternative specification like $log(y+1)$ ~ $X$ (most $y$s are really ...
2
votes
2answers
125 views

Instrumental Variable Interpretation

I have an explanatory variable, 'social class' which I am trying assess the effect on a child's test score. Social class is a 6 fold categorical that breaks down based upon the parent's occupation - ...