This course in econometrics is intended for all Honours students in Economics. Its aim is to make you conversant with modern econometric theory and practice. Mathematical prerequisites are reasonable, just enough to grasp the theoretical underpinnings of the subject. In particular, only a little calculus is used, but there is quite heavy emphasis on matrix algebra. The practical side of the course involves working with real data, and also conducting simulation experiments on the computer. Since simulation plays an increasingly important role in both econometric theory and practice, a good deal of emphasis is placed on it.
Course Outline
Course details and announcements:
The class meets on Tuesdays and Thursdays, from 13.00-14.30, in Room 280 of the Macdonald Engineering building.
Our TA is Jean-François Fournel.
His office hours will be, starting next week (Sept 15th)
Wednesday: 16.00-17.00
Friday: 13.00-14.00
in Ferrier 231A. Note that this information is different from what was here earlier.
J-F Fournel will hold two tutorials on Matlab, as follows:
- Monday September 27th, at 9:30am (EST),
- Monday October 4th, 9:30-10:30am (EST).
Here is the zoom link to attend:
https://mcgill.zoom.us/j/5956336119
He plans to cover the following topics:
a) How to install Matlab
b) Basic algebra in Matlab
c) Importing a dataset
d) Figures
e) OLS
Final Exam
The final exam is scheduled for Thursday December 16, 18.30-21.30. It is an in-person exam, organised by the exam office. It will take place in the Fieldhouse of the Gym, rows 27-29. You will be allowed one cheat sheet, double-sided, handwritten or typewritten. Read the instructions on the exam carefully before starting to work on the exercises.
Midterm Exam
The midterm exam will be a timed take-home exam. The exam is available here, and the data file can be accessed from here. You should upload two files - as for the assignments - to myCourses by 15.00 on Wednesday October 20.
While you are working on the exam, be sure to use the latest version of the e-textbook, since it gets modified almost after every class.
Thanksgiving Week
Thanksgiving Monday, October 11, is a holiday; classes are cancelled that day. This year, classes on Tuesday 12 are cancelled as well. Thursday 14 is a makeup day for Monday classes; Friday 15 for Tuesday classes. What this means is that in Thanksgiving week we meet only on Friday 15.
Textbooks:
The main support for this course is the ebook Foundations of Econometrics, available by clicking here. It may be a good idea to download it to your computer or tablet. This ebook is entirely free, but is copyrighted by the authors. It has been constructed out of material in what used to be the principal textbook for the course, Econometric Theory and Methods, Russell Davidson and James G. MacKinnon, Oxford University Press. An older, and more advanced, book by the same authors and the same publisher is Estimation and Inference in Econometrics.
It is my intention to go through the e-textbook from start to finish in order, omitting nothing. Of course, this may not be possible, for various reasons. But if it turns out to be necessary to omit something, I will let you know, and announce it here.
Software:
This year, at least, the recommended software packages for econometrics are, first, MatLab, a commercial product, but freely available to people at McGill on account of a site licence, and, second, Python, a general-purpose interpreted programming language. Our TA uses MatLab, and can answer questions about it. Python is free software (prefer Python 3 to Python 2) and has a vast number of libraries available to it for many things, including econometric calculations.
For more information about getting Matlab, click on this link.
For those of you who may be having trouble with available software for
running regressions, simulations, etc.,
you might like to try my own software, Ects. The documentation is available, not all but most of
it in English, all of it in French. For ease, you can find the first volume here (in English), and the second volume here.
Log of material covered
On September 2nd, we met in person, a slightly strange experience after such a long time when everything was online. We started on the textbook, and covered Chapter 1. In Chapter 2, on Regression Models, we had just started on Section 2.1, and were discussing notation and terminology.
On September 7, we continued work on Chapter 2, and got as far as the subsection Moments of Random Variables in section 2.2.
We completed section 2.2 on September 9, and, in section 2.3, had just about reached the subsection entitled Simulating Econometric Models.
After completing section 2.3 on September 14, we covered all of section 2.4 on matrix algebra except for the subsection entitled Regression Models and Matrix Notation.
Chapter 2 was completely covered after the work we did on September 16.
In Chapter 3, we got as far as the middle of section 3.3 on September 21. We still have to show that a projection matrix is an orthogonal projection matrix if and only if it is symmetric.
We got through section 3.3 on September 23, and then covered section 3.4 on the FWL theorem.
On September 28, we looked at section 3.5 on applications of the FWL theorem, and started on the next section, 3.6, on influential observations and leverage.
We completed Chapter 3 on September 30, and, in Chapter 4, got as far as the first couple of sections. We stopped at the point where it is shown that the OLS estimator can be biased.
We carried on with material from Chapter 4 on October 5. We got exactly as far as the foot of page 128, in the process of discovering an unbiased estimator for σ^{2}.
We finished Chapter 4 on October 7, and started on Chapter 5, where we covered the first three pages, more or less.
On October 15, we got as far with Chapter 5 as page 155 in section 5.3, finishing our discussion of the multivariate distribution.
We completed section 5.3 on October 19, and started on section 5.4, on hypothesis testing. We got as far as showing how the F test is a particular Wald test, and showed that its null distribution is F(k_{2},n-k).
On October 21, we finished section 5.4, and, in section 5.5 got as far as completing the subsection on Central Limit Theorems.
We almost finished section 5.7 on October 26. This is the section on multiple tests, and we saw how to use Bonferroni's inequality to get a conservative test, and also a rule proposed by Simes, which leads to a less conservative test.
In Chapter 6, we finished the three sections on confidence sets on November 2. In the next section, on heteroskedasticity, we reached the middle of page 212.
On November 4, we finished the sections of the HCCME and HAC estimators, and covered most of section 6.6, on cluster-robust inference. We still have to look more closely at the subsection on Why Clustering Matters.
We completed our study of Chapter 6 on November 9. Next comes the bootstrap.
We covered the first three sections of Chapter 7 on November 11, and also looked at an exact Monte Carlo test for serial correlation in a classical normal linear model.
On November 16, we did sections 7.4 and 7.5. Next is heteroskedasticity, in section 7.6
The final sections of Chapter 7 were finished on November 18.
In Chapter 8, we covered the first three sections on November 23. Section 8.4 is to be omitted. In section 8.5, we went only so far as to state Theorem 8.1.
We more or less finished Chapter 8 on November 25. What remains in that chapter is just the final subsection, on the Wild Cluster bootstrap, and a mention of a better bootstrap DGP for models estimated by IV.
We quickly finished Chapter 8 on November 30, and then covered the first six sections of Chapter 9. Next is testing for serial correlation.
The last class was on December 2. It served for us to get to the end of the e-textbook.
Assignments:
The first assignment is available here. It is due on Thursday October 7. Upload two files to myCourses, one, your answers to the questions, the other, your computer code.
The second assignment, dated November 2, can be accessed by clicking on this link. It is due on Thursday November 11.
The third and last assignment, dated November 20, can be accessed by clicking on this link. It is due on Tuesday November 30.
Recordings
What follows are links to the recordings made last year when the course was entirely online. The recordings should be of use in many circumstances: for instance, if you have to miss a class, or if you want a chance to hear me once more explaining some point.
Click here for the video/audio recording of the first class, on September 2. If all you need is the audio recording (smaller file, shorter download time) click here.
In order to replace the non-existent recording for September 9, I have made another recording. For the full audio/video version, click here, and for audio only, click here.
The recording of the class of September 14 is available here. Audio only here.
The recording of the class of September 16 is available here. Audio only here.
The recording of the class of September 21 is available here. Audio only here.
The recording of the class of September 23 is available here. Audio only here.
The recording of the class of September 28 is available here. Audio only here.
The recording of the class of September 30 is available here. Audio only here.
The recording of the class of October 5 is available here. Audio only here.
The recording of the class of October 7 is available here. Audio only here.
The recording of the class of October 14 is available here. Audio only here.
The recording of the class of October 19 is available here. Audio only here.
The recording of the class of October 21 is available here. Audio only here.
The recording of the class of October 26 is available here. Audio only here.
The recording of the class of October 28 is available here. Audio only here.
The recording of the class of November 2 is available here. Audio only here.
The recording of the class of November 4 is available here. Audio only here.
The recording of the class of November 9 is available here. Audio only here.
The recording of the class of November 11 is available here. Audio only here.
The recording of the class of November 16 is available here. Audio only here.
The recording of the class of November 18 is available here. Audio only here.
The recording of the class of November 23 is available here. Audio only here.
The recording of the class of November 25 is available here. Audio only here.
The recording of the class of November 30 is available here. Audio only here.
The recording of the class of December 2 is available here. Audio only here.
The recording of the class of December 3 is available here. Audio only here.
Notes
Follow this link for material intended to supplement the textbook. The first note gives definitions related to zero functions and estimating equations.
Other teaching materials
This link is to the paper that was the basis for my presidential address to the CEA in 2015. The first couple of sections were also the basis for much of what I said in the first lecture. And this link takes you to the slides I used for the presentation - perhaps enough for our purposes.
URL: https://russell-davidson.arts.mcgill.ca/e468