Econometrics I

This course is designed for the Cambridge Master of Finance. It gives an introduction to the following econometric concepts. For a textbook treatment of sessions 2 to 4 refer to chapters 2 to 9 in Jeffrey M. Wooldridge’s “Introductory Econometrics”.

Course material

Week Lectures Textbook Exercises Lab sessions
0 Stock Market Experiment [Results, Data] -- -- Software install session
1 Normal distribution, estimators, sampling distributions of estimators, tests of hypotheses [Session 1, Session 2, R-script] -- Sheet 1, Sheet 2 Descriptive Statistics [Handout, R-Script]
2 t-distribution, simple linear regression, OLS assumptions and properties, Gauss-Markov Theorem, Multiple regression models, Multicollinearity, F-tests [Session 3, Session 4, R-Scripts part1, part2] Ch. 2-4 Sheet 3, Sheet 4 Linear Regression [Handout, R-Script]
3 F-tests, Non-linearity and Model Transformations, Dummy variables, Specification errors [Session 5, Session 6, Log's, Int's, R-Scripts part1, part2] Ch. 6-7 Sheet 5, Sheet 6, WB1 Model Selection; Inference; Non-linear models [Handout, R-Script]
4 Tests of regression assumptions, continued: Outliers and Influential observations [Session 7, R-script] Ch. 8-9 Sheet 7, WB2 Generalized Least Squares [Handout, R-Script]

Note: part of this year’s lab material is available at Despo Malikkidou’s website.

Lectures

7 Nov, 14 Nov, 21 Nov, 28 Nov, all 9-12.30pm @ LT2

Lab sessions

EViews (Despo Malikkidou):
11, 18, 23, 30 Nov, all 2-4pm @ Computer Lab

RExcel (Jerry Xiang He):
11, 18, 23, 30 Nov, all 2-4pm @ (W2.01, LT2, LT2, LT2)

Reading

  • Dougherty, C. (2007) Introduction to econometrics. Judge: HB139.D68 2007
  • Stock, J. and Watson, M. (2007) Introduction to econometrics. Judge: HB139.S76 2007
  • Wooldridge, J. M. (2008) Introductory econometrics: a modern approach. Judge: HB139.W66 2008

Software

We offer EViews and RExcel in two parallel streams. EViews is networked so you can use it at the School. If you also want to work from home or prefer to do your stats in a spreadsheet, then RExcel is right for you. RExcel is a free Excel add-in that combines the de facto industry standard for data analysis (Excel) and one of the most popular languages for econometrics and statistical research (R). Read about R in this New York Times article.

Download and install RExcel (for Windows)
Install issues:

The following problems are usually caused by internet failure while installing RAndFriends (computer firewall blocked the installation), or computer security blocking launching of downloaded components: (1) Excel does not show the RExcel Add-in, (2) When clicking Start R, a warning pops up: “No R server configured”. It is important to understand that RAndFriends downloads other components DURING the installation process, so if the user’s computer is not connected to the internet, then installation often fails.

  • First remedy is to make sure computer is connected to the internet, and then relaunch RAndFriends
  • This may fail again because of your computer’s own security system being overprotective, so the Second remedy is to download several installers manually and install.
Key settings you should be aware of:
  • If you get the warning message: “R server not found”, go to Addins -> RExcel -> Set R Server, then select Background. Click Save and then Click Close.
  • Excel Options -> Trust Center -> Trust Center Settings -> Macro Settings -> Trust Access to the VBA project object model

Other fixes are related to people having international language Windows OS. The guide below is for if you have SUCCESSFULLY installed Rexcel but are having trouble reproducing the class example. Possible fixes to strange incomprehensible RExcel errors are

  • Look at R Commander Window and make sure your data set is not named in a foreign language, e.g, if you see 你哈蛤=read.table(' ...
  • Look at the data in Excel or in R Commander and make sure no strange symbols are appearing in your data. If so, restart Rexcel with a clean sheet, open the data in wordpad, copy the data, and then import via clipboard.
  • On some computers, importing via the RExcel menu rather than Excel itself also solves this issue.
Mac and Linux

Mac and Linux users have three install options.

  • Install Windows 2008 server with Microsoft Office 2010 Professional trial manually.
  • Work with the R Commander instead. The R Commander allows an easy start with R using mouse and menu. You will find these install notes useful. The general structure is as follows.
    • Download and install R from http://www.r-project.org: (i) Under Download on left side click: CRAN; (ii) Choose a local mirror in the UK, e.g., London or Bristol; (iii) Choose platform, e.g. Linux, MacOS X, etc.
    • Open R, install the R commander by typing install.packages("Rcmdr") in the console, and load it in the active workspace by typing library(Rcmdr). You can run the Commander by typing Commander() in the console.
  • Download the OpenOffice extension ROOo from http://rcom.univie.ac.at/download.html (limited functionality).
Documentation
  • To explore the options of RExcel, watch this video demonstration.
  • Documentation for RExcel is available in the Springer book R through Excel. You can download the pdf version for free with your Raven password.
  • Documentation for R itself is provided via the build in help (use, for example, help.search("t test") in the script window) but also through the R Homepage. Useful are An Introduction to R and the R Reference Card. Other manuals are available on the website.

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