ECO 5311 – Applied Econometrics – Spring 2006. Page 1 of 4.

Syllabus ECO 5311: Applied Econometrics

Spring 2006, Thursday 7:00-9:45 p.m.
Room: CB 1.104

Professor Magnus Lofstrom

Office: GR 3.522
Phone: (972) 883-4763
E- mail: lofstrom@utdallas.edu
Office Hours: Thursday 3:30-5:30 p.m., and by appointment.

Teaching Assistant: Khusrav Gaibulloev (Office: GR 2.816, O.H.: Tuesday, 4:00 -

6:00 p.m., Phone: (972) 883 4914, e-mail:
kng031000@utdallas.edu)

Course Description and Objectives:

This is a graduate level introduction to econometrics exploring commonly used

econometric techniques. We will investigate the consequences of relaxing the
classical linear regression model assumptions and explore solutions when the
assumptions do not hold. Topics include a review of the OLS basics (including
the assumptions, hypothesis testing, multicolinearity, dummy variables and
heteroscedasticity), model specification and selection, GLS, maximum likelihood
estimation, binary choice models, simultaneous equation models, instrumental
variables and fixed and random effects models. The primary text used is Gujarati.

Note, class attendance is strongly recommended, partly because I will cover some
material in class that is not covered in Gujarati. Good references for these
somewhat more advanced topics are Greene and Johnston and DiNardo (available
on library reserve), see the recommended text below. I will makes sure to point
out theses topics and specifically where you can learn more about them in class.

The objectives of the course include: (i) providing a general introduction to

econometric theory and application, and further your understanding of
econometric theory; (ii) providing you with an understanding and appreciation for
the relationship between the theory and its applications; (iii) giving you the tools
to identify strengths and weaknesses of specific econometric models and based on
this choose appropriate models that appropriately address the given research
question. To obtain these goals we will use mathematical tools such as calculus
and matrix algebra to analyze the theoretical econometric properties and then
apply the methods to the data, by using econometric software such as Stata. You
will complete several homework assignments using both macro and micro
economic data. The focus of the course is not on mathematical proofs but to apply
econometric techniques to analyze economic research questions. However, a
sound understanding of the theory will make you a better empirical researcher.
 ECO 5311 – Applied Econometrics – Spring 2006. Page 2 of 4.

Hence, the assignment will also encompass theoretical issues. In order to achieve
these course objectives, you will also complete an empirical project.

Prerequisites:
Advanced Regression (POEC 5316) or equivalent.

Academic Honesty:
Scholastic dishonesty is taken very seriously and will not be tolerated. Cheating
on exams, plagiarism, or any other form of academic dishonesty is unacceptable.
The penalty for academic dishonesty is, at a minimum, a zero grade for the
examination or assignment in question and a failing course grade. Also, the
incident will be reported to the Dean of Students and will become part of your
record. (More information at: www.utdallas.edu/student/slife/dishonesty.html).

Required Text:
Gujarati, Damodar N. Basic Econometrics, 4th ed., New York: McGraw-Hill,
2003.

Recommended Texts (On reserve in library):

Greene, William H. Econometric Analysis, 5th ed., Upper Sadle River, NJ:
Prentice-Hall, 2003.

Johnston, Jack and John DiNardo, Econometric Methods, 4th ed., New York:
McGraw-Hill, 1997.

Wooldridge, Jeffrey M. Introductory Econometric: A Modern Approach, 3rd ed.,

Cincinnati: South-Western College Publishing, 2006.

Exams and Grading:

There will be one in-class midterm and a final. The midterm is worth 25% of your
grade and the final counts for 35%. The midterm is scheduled for Thursday,
March 2 and the final is on Thursday, April 27.

There will be 3 homework assignments each worth 5%.

You will also complete an empirical project. The project entails i) project
proposal and presentation (5% of your grade), ii) presentation of the final project
(5%) and iii) the completed paper (15%).

All assignments and exams count towards your final grade. No make- ups will be
given and no late assignments will be accepted.
 ECO 5311 – Applied Econometrics – Spring 2006. Page 3 of 4.

Tentative Topics: (Any changes and specific readings and chapters will be
announced in class)

1. Introduction and Review. (Gujarati, Ch. 1-11)

(i) Bivariate and multiple regression.
(ii) Multiple regression.
(iii) Hypothesis testing
(iv) Multicollinearity
(v) Heteroscedasticity

2. Introduction to Matrix Algebra. (Gujarati, App B and C, Greene App. A)

(i) Basic definitions and operations.
(ii) The matrix approach to OLS.

3. Econometric Modeling. (Gujarati,Ch. 9, 13)

(i) Model specification errors
(a) Omitted variable bias
(b) Irrelevant variables
(c) Measurement errors
(ii) Model Selection
(a) Model selection criteria
(b) Nested and non- nested model tests
(i) Dummy Variables
(a) Interaction effects
(b) Testing for structural changes/differences
(c) Piecewise linear regression

4. Time series – Autocorrelation (Gujarati,Ch. 12)

(i) Properties of OLS estimators
(ii) AR(1)
(iii) Detecting/testing for autocorrelation
(iv) First-difference method
(v) Estimating ρ
(vi) Feasible GLS

5. Maximum Likelihood Estimation. (Johnston & DiNardo, Ch. 5, Greene Ch. 17)

6. Discrete Choice Models. (Gujarati,Ch. 15)

(i) Linear probability model
(ii) Logit
(iii) Probit
 ECO 5311 – Applied Econometrics – Spring 2006. Page 4 of 4.

7. Simultaneous equation models (Gujarati,Ch. 18-20)

(i) Endogeneity
(ii) Properties of OLS estimators
(iii) Identification
(iv) Hausman specification test
(v) ILS and 2SLS

8. Panel data (Gujarati,Ch. 16)

(i) Fixed effects
(ii) Random effects

Final: Thursday, April 27, 7:00 p.m. - 9:45 p.m.