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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Incidental Parameters Problem in Poisson Regression

I have been told that Poisson Regressions do not suffer from the incidental parameters problem that most MLE suffers. I am attempting to prove this, and have not been able to finish. The derivation I ...
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1answer
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How to recognize correlation in spurious regression case

Assume we are given two independent random walks $$ Y_t = Y_{t-1} + \varepsilon_{1, t}, \quad \varepsilon_{1, t} \sim \mathcal{N}(0, 1) \\ X_t = X_{t-1} + \varepsilon_{2, t}, \quad \varepsilon_{2, t} \...
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1answer
12 views

Interpreting an ADF test in R

Although being a mathematician, I am fairly new to time series and R. On an assignment I was being asked to check a time series for stationarity in R, only using the $\texttt{adf.test}$ function that ...
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1answer
33 views

What is the “moderator for the relationship” in interactive regression model?

I have an interactive regresison model as below: $Y_{i,t} = \beta_0 + \beta_1$$D_i$ + $\beta_2$$P_{i,t}$ + $\beta_3$($D_i$$P_{i,t}$) + other covariates + error terms In this model, why $D_i$ is called ...
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1answer
23 views

When doing 2SLS, can you use OLS if the dependant variables are dummy variables?

I assumed you would need to do an IV probit in this scenario, but it was not used in this AER paper - Children and Their Parents' Labor Supply (Angrist and Evans, 1998). The first stage is estimated ...
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26 views

How to estimate an SUR model in R with fixed effects and clustered standard errors?

I want to estimate an SUR (Seemingly Unrelated Regressions) model. I tried using systemfit and its wrapper Zelig. But I am not ...
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20 views

How many subsample ways we normally have?

I am wondering how many subsample ways or to get estimates for some sub-categories of the data without sub-sampling. So far I know two approaches: 1> We can divide the whole sample into two ...
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2answers
55 views

Is there any restriction for numerator of variance calculation for population?

When reading things relating to the degree of freedom, I face this document. In this document, there is one part: Standard deviation in a population is: I understand that when we estimate the ...
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What are the advantage of adding interactive variable over subsampling in drawing conclusions?

As 1muflon1 mentioned, there are two main advantages of adding interaction variables over subsampling are: (1) having higher sample size, leading to higher precision and (2) higher degree of freedom. ...
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1answer
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Adding interaction and its elements into an equation confusion?

Today, when asking for some suggestions about adding the interaction variables, a commentor ask me that I should include all elements of this interaction variable to this equation: For example: My ...
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How to calculate price of intermediate product? [closed]

If a firm is divided into a marketing division, involved in the production of a final product which uses an intermediate product produced by a production division. The demand function for the final ...
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1answer
32 views

Why the magnitude of coefficient of interest decrease drastically when adding an interaction variable?

When examining whether the impact of laws on Y1 differently in developed countries is to add an interaction variable pt is a variable of interest in a Differentce-in-Difference setting. pt_original is ...
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How to explain the significant levels change when adding interaction variables?

@1muflon1 has a great explanation regarding the interaction variable meanings when I want to compare the laws' effect on firms' asset growth between developed and developing countries. Today, when ...
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1answer
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Durbin Watson Test for an AR(1) process

$(1) y_t =\beta y_{t-1} +\epsilon_t$ $(2) \epsilon_t =\rho \epsilon_{t-1} +v_t$ Where $v_t$ is i.i.d white noise. I know that OLS estimates of (1) are biased. It would then follow that estimates of $...
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Difference between AR confidence intervals reported in weakiv versus twostepweakiv

Should the Anderson-Rubin confidence intervals reported in weakiv and twostepweakiv be equal to each other? Sun (2018) does not ...
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23 views

Type I and Type II errors examples to clarify the definition in economics and finance [duplicate]

Type I and Type II errors' definition following this link is as below A Type I error means rejecting the null hypothesis when it’s actually true. It means concluding that results are statistically ...
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1answer
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Error structure in subsampling

Subsampling is normally examined in many international studies (grouped by market developement, country governance,etc), @1muflon1 has a great explanation here in one case. In his answer, there is one ...
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1answer
27 views

What is social science and discussion about Type II error preference?

Today, my senior lecturer in economics and finance class teaching about laws impact companies' operation told us one sentence "Also keep in mind that in (at least social) science, we care (try to ...
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Deriving the VECM form of a VAR(1) model [closed]

Above is a question regarding volatility models and specifically deriving the VECM form from a VAR(1) model, unfortunately my lecturer hasn't provided an example of such a question prior so would love ...
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1answer
31 views

Subsampling result explanation?

I want to examine whether the impact of laws on asset growth difference between developed and developing countries. One way to do so is by adding the interaction between the variable of interest and a ...
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38 views

Sample size and statistical significance dicussion

As we know, sample size can play a role in reaching statistical significance, provided that splitting the quant world in what is and what is not statistically significant is probably an overestimated/...
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25 views

What we should do when the result is only significant to one country but the whole sample?

In a staggered Difference-in-Differences setting, Dasgupta, 2019 has a formula for such a static setting is $Y_{it}$ = $\alpha$ + $\beta$ $pt_{kt}$ + $\delta$$X_{ikt}$ + $\theta$$_t$ + $\gamma$$_i$ +$\...
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1answer
37 views

Show that the estimator of GMM weigh matrix is consistent

(Hansen Exercise 13.3) Take the model $Y = X'\beta + e$ with $\mathbb{E}[Ze] = 0 $. Let $\tilde e_i = Y_i - X_i'\tilde \beta$ where $\tilde\beta$ is consistent for $\beta$ (e.g. a GMM estimator with ...
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1answer
41 views

How to deal with non-random measure error in dependent variable

Let's say I have a model $y_t = \alpha + \beta_1 s_t + \beta_2 p_t + \epsilon_t$ But $s_t$ depends on $p_t$ too, however, not observed. So I take it to the left-hand side. $y_t-s_t = \alpha + \beta_p ...
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AR(q) Strongly Stationary

Consider an AR(q) process, $u_t$. If the roots of a characteristic polynomial are outside of the unit circle, the AR(q) process is weakly stationary. I've seen this proof that proceeds by showing the ...
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1answer
39 views

Revisiting whether we can control for three dimensions or not?

We have a great discussion here about controlling for three dimensions (firm, year, and industry fixed effects) A reasonable way to do so so far is controlling for firms fixed effect and industry * ...
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1answer
23 views

Asking for subsample test approaches

From this discussion, one way of conducting the subsample test is changing the equation from Dependent_variables= pt + Independent_variables + fixed effects + error term to Dependent_variables= pt + ...
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29 views

Multi Linear Regression [closed]

I have conducted a multi-linear regression for a data set as part of my econometrics course. The equation is as below - Log(output) = b1 + b2fwage + b3educ + b4fwage.educ + b4exper + b5exper2 + ...
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2answers
62 views

What does “unit level” mean?

From a discussion here, I saw a comment that Clustered standard errors/variances with clustering at the unit level are equivalent to robust standard errors/variances. If I am examine at firm level, ...
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2answers
46 views

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 ...
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2answers
46 views

A better way of expressing income distribution that takes into account the inequality?

I apologize if it is too trivial a question, but I didn't seem to find quick answer and haven't encountered it in my math classes back in high school loads of years ago. When talking about people's ...
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1answer
131 views

Seemingly Unrelated Regression Estimation - Equivalent to OLS Standard errors?

In a SURE framework, if all X are the same in all regressions I was under the impression that there is no efficiency gain. Recently an assistant professor told me that the beta coefficients would be ...
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2answers
185 views

How clustering affects standard error?

In panel data, when adding covariates, the standard error normally decreased, I am wondering whether standard error when clustering higher or lower comparing to without clustering.
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1answer
56 views

What are the dynamic and static event-study?

When reading about the Difference-in-Differences for multiple groups and time periods, I see a term called "static or dynamic/event-study". Can you help me to distinguish these two settings ...
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1answer
44 views

Bootstrap always valid under asymptotic Normality?

If an estimator is known to have an asymptotically normal distribution, is that sufficient for the bootstrap to be valid? It seems that is must be, but in 20 minutes of Googling I have come up empty ...
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1answer
40 views

Can Difference-in-Difference be used when the treatment effects get smaller with time since treatment?

Recently, there is an emerging line of the study said that the traditional two-way fixed effect(TWFE) is failed in a lot of case because of the heterogeneous effects of laws over time, follow some ...
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0answers
26 views

Get empirical steady state moments for calibrating a DSGE model

I want to calibrate some parameters of my DSGE model so that in the steady state some variable ratios, that are present in data, are met. My question is, how do I get such ratios from time series ...
3
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1answer
46 views

Why including individual level variables help to control for confounding events?

In Pischke,2005, p.7's note, he documented Including individual level variables may not only help to control for confouning trends, but may also reduce the variance of $\epsilon_{ist}$ , which may ...
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1answer
52 views

Precision of language regarding “statistical significance” in Wooldridge's *Introductory Econometrics* (7th ed)

I've been reading Jeffrey Wooldridge's textbook Introductory Econometrics: A Modern Approach (7th edition) in preparation for a class I will be teaching. I've appreciated the precise language he uses, ...
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1answer
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 ...
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3answers
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 ...
3
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1answer
43 views

Including an endogenous covariate in a regression model as a control to estimate the effect of another variable of interest

I am interested in the effect of an independent variable $x$ on a dependent variable $y$, like so $$ y = \beta_0 + \beta_1 x + e $$ where $e$ is the error term. Now $x$ includes two effects $z_1$ and $...
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1answer
34 views

Subsampling vs. m out of n bootstrap

My understanding is the distinction between subsampling and the m out of n bootstrap is that subsampling draws without replacement but the m out of n bootstrap does not. If we are not in a situation ...
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1answer
28 views

Whether we must cluster by country with staggered laws implementation?

When trying to find a way of avoiding using clustering, I saw that Abadie, 2017 have a great paper mentioned when we should cluster, summarized by McKenzie here. I used the paper of Dasgupta,2019 to ...
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1answer
90 views

Finding consistent but inefficient GMM estimate

Consider the following linear model $$y_t = x_t' \beta +u_t$$ where $t =1,...,T$ and $x_t = (x_{1t} x_{2t} ... x_{kt})'$ , $ \beta$ is $k \times 1$ vector of unknown coefficients, $u_t$ is an iid ...
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2answers
34 views

Reverse DiD: or using always treated as control

I would be interested also in the generalised case, but let's start with 2x2 to keep it simple. Say you have two groups $i \in \{1,2\}$ and two time periods $t$ and $t-1$, as the classical DiD case. ...
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14 views

Time series for contrasting empirically money demand and Taylor rules series

Non-cashless New-keynesian models often include discretionary monetary policy expressed as a Taylor rule: $1+i_t = (1+i)\left(\frac{1+\pi_t}{1+\pi}\right)^{\phi_\pi}\left(\frac{y_t}{y_t^n}\right)^{\...
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0answers
22 views

Is Hodrick-Prescott filter optimal with irregular component?

I need to extract cyclical component from time series, when doing seasonal adjustment I have the option to remove, apart from seasonal component, the irregular component. Then I'll apply HP to the ...
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1answer
34 views

When to use dynamic panel data models

I recently got a comment that I should use dynamic panel data model instead of a static one because my outcome is likely to be serially correlated. I guess it makes sense for my application, but it ...
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0answers
54 views

If we clustered by country, why we need to cluster by firms and industry?

From this discussion, it seems to me that if the test survives when clustering by countries, we do not need to cluster by industries or firms because firms and industries for sure have more ...

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