Time Series Econometrics

This
is an introduction to modeling time series data. The prerequisites are mathematical
economics (or math through multivariable calculus) and econometrics or
mathematical statistics.

James
D. Hamilton, *Time Series Analysis* (QA 280.H264 1994, on reserve)

David F. Hendry, *Dynamic Econometrics* (HB 141.H458 1995, on reserve)

Other readings are available from the Blackboard site:

Johnston and DiNardo,* Econometric Methods,*
Fourth Edition (J&D).

Maddala, G.S., *Introduction to Econometrics*,
Second Edition (M).

Moody, *Basic Econometrics with Stata* (BES)

Grading

Forecasting Tournament |
10% |

Midterm Exam |
20% |

Final Exam |
35% |

Term Paper |
35% |

All homework assignments must be completed. Questions based on the homework assignments will be on the midterm and the final exam.

Complex
numbers

Circular functions

DeMoivre's Theorem

Dynamic
multipliers (P&R 413-431)

Eigenvalues (Johnston, J. "The Eigenvalue Problem")

Stability conditions: roots inside the unit circle

Lag
polynomials

Stability conditions: roots outside the unit circle

(P&R 463-601; Hamilton ch. 3, 4; J&D 204--215)

Stationary
ARMA processes

White noise

Covariance stationarity

MA(q) processes

AR(p) processes

Box-Jenkins forecasting philosophy (M, 542-549;J&D 228-234)

a.
Identification

b. Estimation

c. Forecasting

Forecasting
Tournament

(P&R 399-407,431-435; M, 578-80, 592-7; Hamilton ch. 11;J&D 287-301)

VAR's
and reduced form equations

Matrix notation

Stability conditions

Impulse response functions

Hypothesis tests

Granger causality tests (P&R 216-7; M, 393-4)

Assignment: VAR (crime and punishment)

Trend
Stationary vs Difference Stationary Models (M, 258-264)

Persistence of shocks

Dickey-Fuller tests (P&R 507-513; M 582-588; J&D 215-228; BES Ch. 15,
16)

Assignment: Diebold and Senhadh, "The Uncertain
Unit Root in Real GNP: Comment,"* American Economic Review*, 86,
1996, 1291-98.

Assignment: Lothian and Taylor "Real Exchange Rate Behavior: The Recent
Float from the Perspective of the Past
Two Centuries," *Journal
of Political Economy *104, 1996, 488-509.

Is Crime a Random Walk?

Cointegration and long term equilibria

(Granger, "Introduction." from Engle, R.F. and
Granger, C.W.J., *Long Run Economic Relationships*,

Oxford University Press, 1991.)

Tests for cointegration (P&R 513-516; M, 588-600;
J&D 301-305)

Enders, W. "Characteristic Roots, Rank, and Cointegration." 385-405.

Estimating the cointegration
vector (dynamic ordinary least squares)

Assignment: Warner, "Does world investment demand determine U.S.
imports?" *American Economic Review*, 84, 1994, 1409-1422.

Assignment: Demand for money in the US, Stock and Watson, "A simple Extimator of Cointegrating Vectors
in Higher Order Integrated Systems," Econometrica,
61, 783-820, 1993. Read section 7 (Stock&Watson.pdf).

Fixed effects model

Panel unit root tests

Panel cointegration tests

Is Crime a Random
Walk?

(Hendry,

Levels
of knowledge (ch 1)

Econometric Concepts (ch 2)

Nonsense regressions and spurious detrending (ch 4)

Exogeneity (ch 5)

Typology of linear dynamic models (ch 7)

Dynamic systems (ch 8)

Theory of reduction (ch 9)

Simultaneous equations (ch 11)

Encompassing (ch 14)

Modeling issues (ch 15)

Example: demand for money in the U.K.(ch 16)

Hendry and Ericsson, "An econometric analysis of U.K. money demand in
monetary trends in the

United States and theUnited
Kingdom by Milton Friedman and Anna J. Schwartz."

* American Economic Review *81, March 1991, 8-49.

Granger, C.W.J. "Where are the Controversies in Econometric
Methodology?"

(From Granger, C.W.J. *Modelling Economic Time Series,*
Oxford: Oxord University
Press, 1990.

Pagan, A.R. "Three Econometric Methodologies: A Critical Appraisal."

(From Granger, C.W.J. *Modelling Economic Time Series,*
Oxford: Oxord University
Press, 1990.

"Professor Hendry's Econometric Methodology."

(From Granger, C.W.J. *Modelling Economic Time Series,*
Oxford: Oxord University
Press, 1990.

Review and integration with mainstream econometrics: Johnston & Dinardo, 244-265.