Institute of Management Studies, University of Peshawar General (MBA) Program 2nd semester 2010

SUBJECT: SEMESTER: INSTRUCTOR: ECON 231: Econometrics 1 2nd Semester 2010 Hamid Ullah, Visiting Faculty (Permanent Lecture in NUML University)

Contact Details:
CLASS HOURS: PRE-REQUISITE:

E-mail: ims.hamid@gmail.com
Lecture: Wednesday/Thursday: 8::00 9.30am 1.00 2.30pm Evening Calculus 1; Statistics; Probability
Principles of Macroeconomics OR Intermediate Macroeconomics 1 Principles of Microeconomics OR Intermediate Microeconomics - 1

AIMS AND OBJECTIVES: This course mainly revolved around regression analysis. The course commences with the definition and historical perspective of simple regression equation. After discussing the properties of OLS estimators we move on to topics of testing of hypothesis, applications of Gauss-Markov theorem, and interval estimation. After introducing the topic of multiple regressions we move on to issues such as multicollinearity, hetroskedasticity, and autocorrelation. Throughout the course our main approach is to present the topics in an easily understandable format with emphasizes on real-world examples and exercises. Still the prerequisites for the course are to have familiarity with calculus, matrix algebra, introductory statistics and macro and microeconomics. Goals 1. 2. 3. 4. 5. The main goal of the course is to introduce econometric analysis to the students and to enable them to apply various modern tools of this analysis in their future work and studies like SPSS, GRETAL and STATA. Enables students to thoroughly understand the theoretical foundation of Regression Enables students to derive the basic properties of OLS estimators Enables students to estimate a regression equation with real data Enables students to understand and handles topics such as Dummy Variables, Multicolinearity, Hetroskedasticity, and Autocorrelation

Text Books
1. 2. Gujarati, D. Basic Econometrics, (McGraw Hill, 2003) 4th edition (GJ) Griffths, Hill, and Judge. Learning and Practicing Econometrics (John Wiley & Sons, 1993) (GHJ)

Additional Readings
1. 2. 3. Maddala, G.S. Introduction to Econometrics (Prentice Hall, 1992) 2nd Edition Pindyck and Rubinfeld. Econometric Models and Economic Forecasts (Mc-Graw Hill, 1991) 3rd edition Ramanathan, R. Introductory Econometrics with Applications (Dryden198) 4th edition.

LECTURES SCHEDULE
1.0 Econometrics? 1.1 what is econometrics? 1.2 Why a separate subjects? 1.3 Methodology of econometrics. 1. Statement of theory or hypothesis. 2. Specification of the mathematical model of the theory 3. Specification of the statistical, or econometric, model 4. Collecting the data 5. Estimation of the parameters of the econometric model 6. Hypothesis testing 7. Forecasting or prediction 8. Using the model for control or policy purposes. 2. Introduction to SPSS, GRETL and STATA. For data analysis. 1.0 Two-Variable Regression Analysis: 1.1 1.2 1.3 1.4 1.5 Introduction The Concept of Population Regression Function (PRF) Stochastic Specification of PRF The Significance of the Stochastic Disturbance Term The Sample Regression Function (SRF) GJ: Chap. 2, GHJ: Chap. 5

Suggested Readings: 2.0

Two-Variable Regression Model 2.1 2.2 2.3 2.4 2.5 2.6 2.7 The Method of Ordinary Least Squares (OLS) The Classical Linear Regression Model Standard Errors of Least-Squares Estimates Properties of Least Squares Estimators The Gauss-Markov Theorem The Coefficient of Determination Data Mining and Manipulations by SPSS, GRETL, SPSS. GJ: Chap. 3, GHJ: Chap. 3, and 6

Suggested Readings: 3.0

Classical Normal Linear Regression Model (CNLRM): The Normality Assumption, Interval Estimation and Hypothesis Testing 3.1 3.2 3.3 3.4 3.5 3.6 The Probability Distribution and the Normality Assumption of Disturbance u i Properties of OLS Estimators under the Normality Assumption Probability Distributions Related to the Normal Distribution: The t, Chi-square, and F Distribution. Interval Estimation Confidence Intervals for Regression Coefficients Hypothesis Testing

3.7 3.8 3.9 i. ii.

The Problem of Prediction Reporting and Evaluating the Results of Regression Analysis Computer Practical Formulation and Specification of Economic Model Basic Statistical Analysis GJ: Chap. 4,5 GHJ: Chap. 2, 4,7

Suggested Readings:

4.0

Extensions of the Two-Variable Linear Regression Model. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Regression through the Origin Scaling and Units of Measurement Functional Forms of Regression Models Log-Linear Regression Models Semilog Models Reciprocal Models Computer Practical i. Estimating Simple Linear Regression Model ii. Hypothesis Testing GJ: Chap. 6, GHJ: Chap. 5

Suggested Readings: 5.0

Multiple Regression Analysis 5.1 5.2 5.3 5.4 5.5 5.6 The Three-Variable Model OLS Estimation The Goodness of Fit Dummy Variables Testing of Hypothesis Computer Practical i. Estimating Extended Economic Model ii. Interpretation of Results GJ: Chap. 7, 8 GHJ: Chap. 9, 12

Suggested Readings: 6.0

Multicollinearity 6.1 6.2 6.3 6.4 6.5 The Nature of Multicollinearity Estimation in the Presence of Perfect Multicollinearity Estimation in the Presence of High but Imperfect Multicollinearity Consequences of Multicollinearity Computer Practical 1. Tests for Multicollinearity GJ: Chap. 10 GHJ: Chap. 13

Suggested Readings: 7.0

Hetroskedasticity 7.1 7.2 7.3 The Nature of Hetroskedasticy OLS Estimation in the Presence of Hetroskedasticity The Method of Generalized Least Squares (GLS)

7.4 7.5 7.6 7.7

Consequences of Hetroskedasticty Detection of Heteroskedasticity Remedial Measures Computer Practical i. Tests for Hetroskedasticity GJ: Chap. 11, GHJ: Chap. 15

Suggested Readings: 8.0 Autocorrelation. 8.1 8.2 8.3 8.4 8.5 8.6

Introduction OLS Estimation in the Presence of Autocorrelation Properties of OLS Estimators in the Presence of Autocorrelation Detecting Autocorrelation Remedial Measures Computer Practical i. Tests for Hetroskedasticy ii. Tests for Serial Correlation GJ: Chap. 12, GHJ: Chap. 16

Suggested Readings:

Extra chapter if time available from advance Econometric

9.0 Time series Econometrics. 9.1 A look at Economic time series Data. 9.2. Stochastic Process 9.3 Unit Root Stochastic Process 9.4 trend stationarity and Differencing stationarity 9.5 Spurious Regression 9.6 Test for stationarity 9.7 The Unit Root Test 9.8 Conversion of non stationary to stationary 9.9 Co-integration Test 9.10 computers Practical GJ: Chap. 21, GHJ: Chap. 23

Suggested Readings:

Grading
Assignment presentation Quizzes (3) Mid-Term Final 15% 10% 25% 50%