# Questions tagged [econometrics]

Econometrics is the application of statistical methods to economic data for various purposes such as of testing hypotheses, infering causal relationships and forecasting future trends. Only use this tag for questions relating to the theoretical aspect of an econometric technique.

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### Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector

I'm trying to understand the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies." In a part in the paper, Hansen introduces a long-...
26k views

### What is structural estimation compared to reduced form estimation?

I've heard a lot of definitions given for structural estimation. But it's never seemed entirely clear to me. Some times I've heard that what one person might call "reduced form" estimation should ...
19k views

### What is the difference between two stage least squares and instrumental variable regression?

I'm doing independent study and I am having trouble understanding the difference between these two estimators. I get that 2SLS is predicting the endogenous variable, and that instrumental variables ...
822 views

### What should we do if the subsample have the opposite results to the general results?

In my replication study, I examine whether a law (a law implemented staggered by different countries) has an impact on firms' cash equivalents. The result turning out for the whole sample is that the ...
198 views

### What is the appeal of DSGE models?

As far as I understand people like them, because they fit the data quite well when compared to VAR's for example while also having an economic interpretation. They appear to explain observations in a ...
1k views

### Deriving the translog production function

Ive been having difficulty deriving the translog production function defined as: $$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j$$ I know ...
1k views

### Books to self-study applied econometrics

I'm a student and I'm interested in focusing on the application of econometric theory to "practical" situations. It would be great if you can suggest freely available books along with those that are ...
428 views

### What is an econometrician?

According to Wikipedia, Econometrics is the application of mathematics, statistical methods, and computer science to economic data and is described as the branch of economics that aims to give ...
204 views

### How to justify the treatment and control groups for Difference-In-Difference with staggered implementation of laws?

A. Background: Dong, 2019 and Dasgupta, 2019 used the same way to generate the treatment and control groups because they all learn about the impact of the same laws on different dependent variables. I ...
64 views

### Example of the change of measure proposed in Hansen (2012)

In this question, I'm continuing to explore the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies" (2012). I'm trying to compute an ...
350 views

### Equilibrium Price - OLS Regression

I have asked another question related to price elasticity, which pretty much left me with this problem: I want to analyze the factors influencing the price of a product. The underlying assumption is ...
873 views

### What are some further readings in Econometrics you recommend?

I've reached the end of my Econometrics courses for the undegraduate level at my university, but I would like to continue learning. I hope I could get some recommendations for further reading. I ...
78 views

### Deriving First Order Condition of Hansen and Singleton (1982)

Hansen and Singleton (1982) considers the maximization of expected utility, \begin{align*} \max \mathbb{E} \sum_{t=0}^\infty \beta^t U(C_t) \end{align*} with respect to the budget constraint, \...
63 views

### Why we need to add firm and year relating independent variables in two-way fixed effect model?

From what I know, these terms are very basic in econometrics but I still not yet fully got it. To me, year fixed effect is to control time-variant omitted variables and firm fixed effect is to control ...
81 views

### Why excluding intercept is dangerous if there is no literature back up in DID setting?

Recently, I run the regression for the generalised DID following this paper: $Y_{it}$ = $\alpha$ + $\beta$ $(Leniency Law)_{kt}$ + $\delta$$X_{ikt} + \theta$$_t$ + $\gamma$$_i +\epsilon$$_{it}$ (1)...
931 views

### Math basics for Macro&Micro economics and econometrics

I have just been admitted to a graduate school for studies in economics and I major in public administration during my undergraduate time. I have learnt linear algebra, single variable calculus, ...
4k views

### Econometrics: Is elasticity meaningful in my, or any, regression?

A few months ago I interned at this organization; and, as a going away present, I decided to spend my last week, with whatever off time I had, to investigate the factors that affect teacher salaries. ...
4k views

### What are some good graduate-level econometrics books for someone with a strong mathematics background?

Related: Book recommendations on empirical methods in economic research and econometrics? I would like to focus mainly on graduate texts in Econometrics. From the question above, I gather that ...
445 views

### Alternative way of deriving OLS coefficients

In another question of mine, an answerer used the following derivation of OLS coefficient: We have a model: $$Y = X_1 \beta + X_2 \beta_2 + Z \gamma + \varepsilon,$$ where $Z$ is unobserved. Then ...
12k views

### What happens if the “control variables” are also endogenous?

I work in Political Economy, and a lot of the models include "innocent" control variables such as population, inequality, colonial legacy, etc. so that the author can claim unbiasedness on their ...
925 views

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### Have you ever seen any paper controlling for firm, industry, and year fixed effect at the same time?

In this discussion, @1muflon1 has a comprehensive answer about some commonly-used fixed effects. I am wondering how to do industry and year fixed effect but still having firm fixed effect? If we do ...
323 views

### Is there empirical evidence on usability of Cobb-Douglas production function?

I am trying to estimate a simple Cobb-Douglas production function $Y=AL^{\alpha}K^{\beta}$ on US data and get an unrealistic estimate of $\alpha$ and a high p-value for $\beta$. Structure of ...
109 views

### Using an elasticity to evaluate changes in a dependent variable

Often in textbooks and online I see thte definition of an elasticity to be as follows: 1) $\epsilon = \frac{\frac{\Delta Y}{Y}}{\frac{\Delta X}{X}}= \frac{\partial \log Y}{\partial \log X}$ Thus, ...
146 views

### Decomposition of an additive functional into a Martingale part and other

This question relates to a theorem about the decomposition of additive functionals---a technique especially useful in macroeconomics and finance. This question has two objective. First, I don't have a ...
115 views

237 views

### How to clarify the description of common trend assumption?

From reading a paper, I saw the way they describe the common trend is Specifically, DID designs assume that confounders varying across the groups are time invariant, and time-varying confounders are ...
1k views

### How is the ARIMA model a valid approach for forecasting Economic Variables?

Ive noticed the use of univariate forecasting methods (i.e the ARIMA model) employed in forecasting inflation (see references below). How is this a valid approach in terms of forecasting economic ...
477 views

### How does the companies set up utility function for its own purposes?

How does the companies set up utility function for its own purposes? In another word, what is the types statistics data that is usually consider and statistical method being used to set up these ...
486 views

### Does it make sense to 'deflate' a sectoral price index in a regression analysis?

For instance, if one is running a regression with deflated prices for a given year and one of the independent variables is a price index for a given sector, does it make any sense to 'deflate' this ...
87 views

### What are the meanings of “difference-in-differences” and “causal estimand”?

In one discussion, I saw the answer containing two words that I think can be used interchangeably, but I am not sure if it's the case. I simply state in other posts that the "generalized" **...
362 views

### VECM interpretation in Matlab?

After testing for cointegration with Johansen test using the following code [h,pValue,stat,cValue,mles] = jcitest(ret,'model','H1*','lags',4,'display','params') ...
65 views

### What metrics can be used to distinguish between capitalistic and socialistic economies?

What macroeconomic indicators are meaningful to distinguish whether a country leans towards socialism or capitalism (and where to find such data, specifically for european countries)?
56 views

### What are the difference between industry fixed effects and industry*year fixed effects?

In this paper, in column 4 Table 1, the author used firms fixed effects and industry*year fixed effect at the same time. I have two questions here: What does industry * year fixed effect mean? What ...
2k views

### Is there any standard measure of economic significance?

One measure is to look at standard deviations. If a one standard deviation increase in X leads to a more than a 0.5 (or 1, or ⅓, or whatever) standard deviation increase in Y, then we say that X has a ...