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Econometrics I
Professor William Greene
Stern School of Business
Department of Economics

Part 1: Introduction

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Econometrics I
Part 1 - Paradigm

Part 1: Introduction

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Econometrics: Paradigm

Theoretical foundations

Microeconometrics and
macroeconometrics
Behavioral modeling: Optimization, labor
supply, demand equations, etc.

Statistical foundations
Mathematical Elements
Model building the econometric
model

Mathematical elements
The underlying truth is there one?
Part 1: Introduction

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Why Use This Framework?

Understanding covariation
Understanding the relationship:

Estimation of quantities of interest such as

elasticities

Prediction of the outcome of interest

The search for causal effects
Controlling future outcomes using
knowledge of relationships

Part 1: Introduction

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Model Building in Econometrics

Role of the assumptions
Parameterizing the model

Nonparametric analysis
Semiparametric analysis
Parametric analysis

Sharpness of inferences

Part 1: Introduction

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Application: Is there a relationship between investment

and capital stock? (10 firms, 20 years)

Part 1: Introduction

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Nonparametric Regression
Kernel Regression
N

w (z)yi
i=1 i

F(z)=
Ni=1wi (z)

1 xi -z
K

.9s / N0.2
wi (z)

K(t) (t)[1 (t)]

(t)

exp(t)
1 exp(t)
What are the assumptions?
conclusions?

What are the

Part 1: Introduction

Semiparametric Regression

Investmenti,t = a + b*Capitali,t + ui,t

Median[ui,t | Capitali,t] = 0

Least Absolute Deviations

F(x)=a+bx

a,b=ArgMin
a,b i1|yi a-bxi |

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Part 1: Introduction

Fully Parametric Regression

Investmenti,t = a + b*Capitali,t + ui,t

ui,t | Capitalj,s ~ N[0,2] for all i,j,s,t

Ii,t|Ci,t ~ N[a+bCit,2]

Least Squares Regression

F(x)=a+bx
2

a,b=ArgMin
a,b i1 (yi a bxi )
N

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1
N 1
i=1 x x
i i

1
i=1 yi
xi

Part 1: Introduction

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Estimation Platforms

The best use of a body of data

Sample data
Nonsample information
The accretion of knowledge
Model based
Kernels and smoothing methods (nonparametric)
Moments and quantiles (semiparametric)
Likelihood and M- estimators (parametric)
Methodology based (?)
Classical parametric and semiparametric
Bayesian strongly parametric

Part 1: Introduction

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Classical Inference

Population

Measuremen
Econometri t
cs
Characteristics
Imprecise inference
Behavior
about the entire
Patterns
population sampling
theory and asymptotics
Choices
Part 1: Introduction

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Bayesian Inference

Population

Measuremen
Econometri t
cs
Characteristics
Sharp, exact inference
Behavior
about only the sample the
Patterns
posterior density.
Choices
Part 1: Introduction

Data Structures

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Observation mechanisms

Passive, nonexperimental
Active, experimental
The natural experiment

Data types

Cross section
Pure time series
Panel
Longitudinal data NLS
Country macro data Penn W.T.

Financial data
Part 1: Introduction

Estimation Methods and Applications

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Least squares etc. OLS, GLS, LAD, quantile

Maximum likelihood
Formal ML
Maximum simulated likelihood
Robust and M- estimation
Instrumental variables and GMM
Bayesian estimation Markov Chain Monte Carlo methods

Part 1: Introduction

Trends in Econometrics

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Small structural models vs. large scale multiple

equation models
Non- and semiparametric methods vs. parametric
Robust methods GMM (paradigm shift)
Unit roots, cointegration and macroeconometrics
Nonlinear modeling and the role of software
Behavioral and structural modeling vs. reduced
form, covariance analysis
Pervasiveness of an econometrics paradigm
Identification and Causal effects
Part 1: Introduction

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Course Objective
Develop the tools needed to read
about with understanding and to do
empirical research using the current
body of techniques.

Part 1: Introduction

Prerequisites
A previous course that used regression
Mathematical statistics
Matrix algebra

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We will do some proofs and derivations

We will also examine empirical applications

Part 1: Introduction

Readings
Main text: Greene, W., Econometric Analysis,
7th Edition, Prentice Hall, 2012.
A few articles
Notes and materials on the course website:

http://people.stern.nyu.edu/wgreene/Econometrics/Econometrics.htm

1-18/22

Part 1: Introduction

http://people.stern.nyu.edu/wgreene/Econometrics/Econometrics.htm

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Part 1: Introduction

The Course Outline

No class on:
Thursday, September
25
Midterm: October 21
Final: Take home due
December 19

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Part 1: Introduction

Course Applications

Software

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NLOGIT provided, supported

SAS, Stata, EViews optional, your choice
R, Matlab, Gauss, others
Questions and review as requested

Problem Sets: (more details later)

Part 1: Introduction

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Course Requirements
Problem sets: 5 (25%)
Midterm, in class (30%)
Final exam, take home (45%)
Enthusiasm

Part 1: Introduction