Macroeconometrics

SYLLABUS
ECON 397
Fall 2005

Instructor: Professor S. Cunningham
Office: Room 418 Monteith Hall
Telephone: (860) 486-3550; Department Office (860) 486-3022

Summary:

This course introduces graduate students to the most econometric techniques most widely employed by macroeconomists and financial economists in their research. Knowledge of these techniques is a crucial pre-requisite to engaging in meaningful scholarly debate in these fields.

The course assumes that the students are familiar with basic estimator theory and the classical linear normal regression model (CLNRM). This course requires significant mathematical maturity. 

Grading and Assignments:

Students are expected to attend every class, and to keep up with all assignments. We will cover a lot of material in a very short time so that it is critical that students do not fall behind.

The course grade will be based upon grades on a computing assignments, a mid-term exam, and a final exam. The final exam will be given on the last day of class. The mid-term and the final exam will each count 40% of the final grade. Computing assignments will be evaluating as satisfactory or unsatisfactory (A or F), and will count 20% of the final grade.

That is, the grading can be summarized as follows:

Mid-Term Exam: 40%
Final Exam: 40%
Assignments: 20%

Powerpoint Lecture #2

Lecture #2 in Acrobat
Lecture #3 in Acrobat
Lecture #4 in Acrobat
Lecture #5 in Acrobat

Powerpoint Lecture #6

Lecture #6 in Acrobat

Lecture #1 on Spectra in Acrobat
Lecture #2 on Spectra in Acrobat
Lecture on Band Spectrum Regression in Acrobat
Lecture on Cepstra
Traditional Smoothing and Seasonal Adjustment
Unit Roots and Cointegration
More on Cointegration
More on Unit Roots
ARIMA1
More on Single Equation Cointegration Tests
ARCH1

VAR1, VAR2, VAR3, VAR4

 

Files:

GNPC96.xls
GNPC96Spectrum.xls
M2NS.xls
M2SL.xls
Spectrum.xls
ResponseM2.xls

COURSE SCHEDULE

Weeks 1 - 4: August 31 and September 15
Econometric Methodology & Complex Analysis

Week 5 - 9: September 27 - October 27
 Time Series in the Time and Frequency Domains

Week 10: November 1 

Week 11: November 8 
Box-Jenkins Models in Theory & Practice

Week 12: November 15
Volatility

Weeks 13: November 29
Other Multi-equation Models

Week 14: December 6 
Structural Breaks and Miscellaneous Topics

 

READING LIST (Still being updated!)

General Econometric Texts

Enders, Walter. Applied Econometric Time Series, 2nd edition. Wiley (2004).

Pindyck, Robert S., and Daniel L. Rubinfeld. Econometric Models and Economic Forecasts, 4th edition. Irwin/McGraw-Hill (1998)


Specialized Texts

Blackman , R. B., and J. W. Tukey. The Measurement of Power Spectra, from the Point of View of Communications Engineering. Dover (1959)

Box, G.E.P., and G.M. Jenkins, Time Series Analysis. Holden-Day (1976).

Bracewell, Ronald N. The Fourier Transform and its Applications. McGraw-Hill (1978).

Brigham, E. Oran. The Fast Fourier Transform. Prentice-Hall (1974).

Churchill, Ruel V. Operational Mathematics. McGraw-Hill (1972).

Churchill, Ruel V., James W. Brown, and Roger F. Verhey, Complex Variables and Applications. McGraw-Hill (1976). 

Cooper, George R., and Clare D. McGillem. Probabilistic Methods of Signal and System Analysis. Holt, Reinhart, and Winston (1971).

Granger, C.W.J., and P. Newbold, Forecasting Economic Time Series. John Wiley & Sons (1986).

Jenkins, G.M., and D.G. Watts, Spectral Analysis and Its Implications. Holden-Day (1968).

Oppenheim, Alan V., and Ronald W. Schafer. Digital Signal Processing. Prentice-Hall (1975). 

Robinson, Enders A., and Manuel T. Silvia. Digital Foundations of Time Series Analysis: The Box-Jenkins Approach. Holden-Day (1979).


Frequency Domain Analysis (Spectral Analysis)

Amos, D.E., and Koopmans, L.H. (1963). Tables of the Distribution of the Coefficient of Coherence for Stationary Bivariate Gaussian Processes. Monograph, Sandia Corporation.

Bartlett, M. S., "Smoothing Periodograms from Time Series with Continuous Spectra," Nature  161 (1948), 686-687.

__________, "Periodogram Analysis and Continuous Spectra," Biometrika 37 (1950), 1-16.

Beveridge, W.H., "Weather and harvest cycles," Economic Journal 31 (1921), 429-452.

__________, "Wheat prices and rainfall in Western Europe," Journal of the Royal Statistical Society 85 (1922), 412-459.

Cargill, Thomas F. "An Empirical Investigation of the Wage-Lag Hypothesis," American Economic Review vol. 59 no. 50 (December 1969), 806-816. 

Engle, Robert F. "Band Spectrum Regression", International Economic Review, vol 15 no. 1 (February 1974), 1-11.

Erol, Unit, and Faik Koray, "Frequency Domain Analysis of the Neutrality Hypothesis," Southern Economic Journal vol. 55 no. 2 (October 1988), 390-399.

Granger, C.W.J., "The Typical Spectral Shape of an Economic Variable," Econometrica 34 (January 1966), 150-161.

__________, "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica vol. 37 no. 3 (July 1969), 424-38.

__________. With Hatanaka. Spectral Analysis of Economic Time Series. Princeton University Press. 1969.

Hannan, E.J. "The Estimation of a Lagged Regression Relation," Biometrika LIV (December 1967), 409-418.

______________. "The Estimation of a Relationship Involving Distributed Lags," Econometrica 33 (January 1965). 206-224.

Hause, John C., "Spectral Analysis and the Detection of Lead-Lag Relations", American Economic Review vol. 61 no. 1 (1971), 213-217.

Parzen, E., "On consistent Estimates of the Spectrum of a Stationary Time Series," Annals of Mathematical Statistics 28 (1957), 329-348.


Unit Roots, Near Unit Roots, Spurious Regression

Dickey and Fuller (1984, 1986) Seasonality.

Dickey, D., and Fuller, W. (1979) "Distribution of the Estimators for Autoregressive Time Series with a Unit Root," JASA 74, 427-431.

Dickey, D., and Fuller, W. (1981) "Likelihood Ratio Statistics fro Autoregressive Time Series with a Unit Root," Econometrica 49, 1057-1072.

Diebold, F., and Rudebusch, G. (1989) "Long Memory and Persistence in Aggregate Output," Journal of Monetary Economics 24, 189-209.

Granger, C., and Newbold, P. (1974), "Spurious Regressions in Econometrics," Journal of Econometrics 26, 1045-1066. (Unit Roots)

Granger, C., and Joyeaux, R. (1980) "An Introduction into Long Memory Time Series Models and Fractional Integration," Journal of Times Series Analysis 1, 15-39.

Granger, C. (1981) "Some Properties of Time Series Data and Their Use in Econometric Model Specification," Journal of Econometrics 28, 121-130.

Hall, A. "Testing for a Unit Root in the Presence of Moving Average Errors," Biometrika 76 (March 1989), 49-56.

Hendry, D., and Mizon, G. (1978) "Serial Correlations as a Convenient Simplification not a Nuisance: A Comment on a Study for the Demand for Money by the Bank of England," Economic Journal 88, 349-363.

Nelson, C.R., and C.I. Plosser, "Trends and Random Walks in Macroeconomic Time-Series: Some Evidence and Implications," Journal of Monetary Economics 10 (1982), 139-162.

Nelson, C., and Kang, H. (1981) "Spurious Periodicity in Inappropriately Detrended Time Series," Econometrica 49, 741-751.

Phillips, P. (1987) "Time Series Regression with a Unit Root," Econometrica 55, 277-301.

Phillips, P. "Regression Theory for Near-Integrated Time Series", Econometrica Vol. 56, No. 5 (Sep., 1988), pp. 1021-1043. 

Phillips and Ouliaris (1988) Journal of Economic Dynamics and Control. 

Phillips, P., and Perron, P. (1988) "Testing for a Unit Root in a Time Series," Biometrika 75, 335-346.

Said, S., and Dickey, D. (1984) "Testing for Unit Roots in Autoregressive-Moving Average Models of Unknown Order," Biometrika 71, 599-607.

Stock, J., and Watson, M. "Variable Trends in Economic Time Series," Journal of Economic Perspectives 2 (Summer 1988), 147-174. (Survey of unit roots.)

Schwert, G., (1987) "Effects of Model Specification on Tests for Unit Roots in Macroeconomic Data," Journal of Monetary Economics 20, 73-103.

Schwert, G. William. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business and Economics Statistics vol. 7 no. 2 (April 1989), 147-159.


Cointegration and Error Correction

Engle, R.F., and Clive W.J. Granger, "Co-Integration and Error Correction: Representation, Estimation, and Testing," Econometrica 55 (March 1987), 73-107.

Granger, C. (1986) "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics 48, 213-228. (Excellent Survey)

Hendry, D. (1986) "Econometric Modelling with Cointegrated Variables: An Overview," Oxford Bulletin of Economics and Statistics 48, 201-212. (Excellent Survey)


VARs

Sims, Christopher A., "Macroeconomics and Reality," Econometrica Vol. 48 No. 1 (January 1980), 1-48.


Causality Testing

Cunningham, Steven R., and Jon Vilasuso, "Time Aggregation, and the Money-Real GDP Relationship", Journal of Macroeconomics, vol. 19 No. 4 (Fall 1997), 675-696.

__________, "Time Aggregation and Causality Tests: Results from a Monte Carlo Experiment", Applied Economics Letters Vol. 2 No. 10 (October 1995), pp. 403-405.

Holmes, James M., and Patricia A. Hutton, "A New Test of Money-Income Causality," Journal of Money, Credit and Banking, Vol. 24, No. 3. (Aug., 1992), pp. 338-355.

Jain, Parul, and Choon-Geol Moon, "Sectoral Money Demand: A Co-Integration Approach (in Notes)," The Review of Economics and Statistics, Vol. 76, No. 1. (Feb., 1994), pp. 196-202.

Kang, Heejoon, "The Effects of Detrending on Granger Causality Tests," Journal of Business and Economic Statistics (October 1985), 344-49.

Sims, Christopher A., "Money, Income, and Causality," American Economic Review, v. 62, no. 4, September 1972, 540-52.


Deseasonalization and Decomposition

Hodrick, R.J., and Prescott, Edward C. "Post-War U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit, and Banking vol. 29 no. 1 (February 1997), 1-16.


ARCH Models

Bollerslev, T. (1988) "On the Correlation Structure for the Generalized Autoregressive Conditional Heteroskedastic Process," Journal of Time Series Analysis, 121-32.

Bollerslev, T. (1987). "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," Review of Economics and Statistics vol. 69 no. 3 (August 1987), 542-547. 

Bollerslev, T. (1986). "Generalized Autogressive Conditional Heteroskedasticity," Journal of Econometrics, 307-27.

Engle, Robert F., "Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica (July 1982), 987-1007.

Engle (1983) JMCB. (U.S. Inflation variance.)

Engle, Hendry, and Trumble (1985). Canadian Journal of Economics.

Engle, R.F., Lilien, D.M., and Robbins, R.P. (1987) "Estimating the Time Varying Risk Premia in the Term Structure: The ARCH-M Model," Econometrica, 391-408.

Engle and Bollerslev (1986). "Modeling the Persistence of Conditional Variances," Econometric reviews, 1-50.

Osborne et al. (1988)

Pagan, et al. (1983). REStud.

Pagan, A., and Wickens, M. (1989) "A Survey of Some Recent Econometric Methods," Economic Journal 99, 962-1025.

Weiss, AA. (1984) "ARMA Models with ARCH Errors," Journal of Time Series, 129-43.