Introduction to Applied Econometrics Analysis Using Stata
By Justin Doran, Jane Bourke and Ann Kirby
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About this ebook
Applied econometric analysis is used across many disciplines and in many branches of economics. Increasingly, data is becoming more readily available and software has become more powerful, enabling the analysis of numerous economic phenomenon. The aim of this ebook is to guide the student through applied econometric examples, using real world data. The focus is on using statistical software, in this case Stata, to perform analysis rather than on econometric theory. The topics explored in this ebook are as follows: initially, the linear regression model is explored and concepts such as coefficients, F-tests and t-tests, and the R2 value are covered. Following from this, some of the most common problems that occur in regression analysis are explored, including the following breaches of the assumptions of the classical linear regression model: multicollinearity, heteroscedasticity and autocorrelation. Topics in time series analysis are also touched upon, including tests for stationarity. Finally, we consider binary dependent variables. This text builds upon the Survey & Questionnaire Design: Collecting Primary Data to Answer Research Questions ebook by Kirby, Bourke & Doran (2016). In that ebook, the methods of primary data collection are discussed, as is how to develop a research question. This ebook builds upon this foundation by showing students how to apply econometric techniques to analyse data that they have collected themselves or sourced from secondary data sources. The text uses the Stata software package. A primer for Stata is presented in Appendix 4 and the companion website (www.justindoran.ie) contains a number of videos that provide a gentle introduction to Stata.
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Reviews for Introduction to Applied Econometrics Analysis Using Stata
2 ratings2 reviews
- Rating: 5 out of 5 stars5/5Able to revise and learned the interpretation of regression techniques
- Rating: 5 out of 5 stars5/5Nice Explanation & good, short description of concepts and exercises. It would be better if a downloadable copy was available.
Book preview
Introduction to Applied Econometrics Analysis Using Stata - Justin Doran
INTRODUCTION TO APPLIED ECONOMETRICS ANALYSIS USING STATA
JUSTIN DORAN, JANE BOURKE & ANN KIRBY
Published by NuBooks, an imprint of Oak Tree Press, Ireland.
www.oaktreepress.com / www.SuccessStore.com
© 2017 Justin Doran, Jane Bourke & Ann Kirby
A catalogue record of this book is available from the British Library.
ISBN 978 1 84621 190 4 (PDF)
ISBN 978 1 84621 191 1 (ePub)
ISBN 978 1 84621 192 8 (Kindle)
Cover image: Copyright reamolko / 123RF Stock Photo
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, without written permission of the publisher. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. Requests for permission should be directed to info@oaktreepress.com.
CONTENTS
1INTRODUCTION
2THE CLASSICAL LINEAR REGRESSION MODEL
3GOODNESS OF FIT – F-TESTS AND R²
4HYPOTHESIS TESTING OF INDIVIDUAL COEFFECIENTS – T-TESTS
5AN OVERVIEW OF A COMPLETE REGRESSION ANALYSIS – ESTIMATION, F-TEST, R², AND T-TEST
6BINARY INDEPENDENT MODELS
7MULTICOLLINEARITY
8HETEROSCEDASTICITY
9AUTOCORRELATION
10STATIONARITY
11BINARY DEPENDENT VARIABLES
REFERENCES
APPENDICES
1F-TABLES
2T-TABLES
3US ACS 2014 CODE
4A PRIMER ON STATA
THE AUTHORS
OAK TREE PRESS
1: INTRODUCTION
Applied econometric analysis is used across many disciplines and in many branches of economics, from studies of macroeconomic models such as the Solow or endogenous growth theory to microeconomic theories of consumer preference. Increasingly, data is becoming more readily available and software has become more powerful, enabling the analysis of numerous economic phenomenon. The aim of this ebook is to guide the student through applied econometric examples, using real world data. The focus is on using statistical software, in this case Stata, to perform analysis rather than on econometric theory.
The topics explored in this ebook are as follows: initially, the linear regression model is explored and concepts such as coefficients, F-tests and t-tests, and the R² value are covered. Following from this, some of the most common problems that occur in regression analysis are explored, including the following breaches of the assumptions of the classical linear regression model: multicollinearity, heteroscedasticity and autocorrelation. Topics in time series analysis are also touched upon, including tests for stationarity. Finally, we consider binary dependent variables.
This text builds upon the Survey & Questionnaire Design: Collecting Primary Data to Answer Research Questions ebook by Kirby, Bourke & Doran (2016). In that ebook, the methods of primary data collection are discussed, as is how to develop a research question. This ebook builds upon this foundation by showing students how to apply econometric techniques to analyse data that they have collected themselves or sourced from secondary data sources.
The text uses the Stata software package. A primer for Stata is presented in Appendix 4 and the companion website (www.justindoran.ie/ebook.html) contains:
Videos that provide a gentle introduction to Stata
The datasets used throughout this book
Do files for Stata that replicate the analysis conducted in each chapter.
2: THE CLASSICAL LINEAR REGRESSION MODEL
After reading this chapter, you will be able to:
Estimate a simple regression model in Stata
In this chapter we introduce the basics of the linear regression model. We will learn about dependent and independent variables, constant and slope coefficients, and how to estimate a regression model in Stata.
The Classical Linear Regression Model
We begin by considering the classical linear regression model, starting with what is referred to as a simple regression model. In this type of model, we have two variables:
A dependent variable
An independent variable.
The dependent variable can be thought of as depending on the independent variable whereas the independent variable is independent of all other variables (it does not depend on any other variable).
As a starting point, let us consider Keynes’ consumption function. At its simplest, this notes that consumption depends on income. The more income someone has, the more they will consume. This suggests that consumption depends on income. Therefore, consumption is our dependent variable. Income, on the other hand, does not depend on consumption – the amount we consume does not determine our income. Therefore, as income does not depend on consumption, it is independent of consumption. Income is our independent variable. We can note the following:
C = f(I) 1
where C represents consumption, I represents income, and f indicates some function.
In this case, consumption is a function of income – the more income we have, the more we consume. This is a function, not a regression model. In order to represent this relationship as a regression model, we assume that consumption is a linear function of income – a linear regression model. This is built upon the equation of a line, where we will have a constant and a slope. This can be written as follows:
C = β0 + β1I + ε 2
where C and I are defined as before but we now have three new terms:
β0 is referred to as the constant term. It is the value of C when I is zero – the amount we consume when we have no income. As well as being referred to as the constant term, this is sometimes also called the intercept as it is the point where the linear regression line intercepts the Y axis (we are at zero on the X axis).
β1 is the slope coefficient. This shows the impact of a one unit change in I on C. β1 can be positive (as I goes up, C goes up), negative (as I goes up, C goes down) or zero (as I changes, C does not change).
ε is the final component – the error term. It is included here for completeness but we will return to it later to explain it in more detail.
We now consider one further addition to our simple equation. We can perform a number of types of analysis in econometrics, including:
Cross sectional analysis: An analysis of a group of units at one point in time.
Time series analysis: An analysis of a single unit over time.
Panel analysis: An analysis of a group of units over time, where units can be individuals, firms, regions, countries, etc. Units are typically denoted using the subscript i, while time periods are typically denoted using the sub-period t.
Therefore, the consumption function for a group of individuals at one point in time could be represented as:
Ci = β0 + β1Ii +