Working Papers

Authors: Andre Veiga,Ansgar Walther

Oct 2016

Abstract:

We contrast the impact of traditional news media and social media coverage on stock market volatility and trading volume. We develop a theoretical model of asset pricing and information processing, which allows for both rational traders and a variety of commonly studied behavioral biases. The model yields several novel and testable predictions about the impact of news and social media on asset prices. We then test the model’s theoretical predictions using a unique dataset which measures coverage of individual stocks in social and news media using a broad spectrum of print and online sources. Stocks with high social media coverage in one month experience high idiosyncratic volatility of returns and trading volume in the following month. Conversely, stocks with high news media coverage experience low volatility and low trading volume in the following month. These effects are statistically and economically significant and robust to controlling for stock and time fixed effects, as well as time-varying stock characteristics. The empirical evidence on news media is consistent with a market in which some traders are overconfident when interpreting new information. The evidence on social media is consistent with Tetlock (2011)’s “stale news” hypothesis (investors treat repeated information on social networks as though it were new) and with a model where investors’ perceptions are subject to random sentiment shocks.

JEL Codes: G02, G12, G14

Keywords: Social media, news media, behavioral finance, volatility, trading volume

Reference: Paper 805

Individual View

Authors: Jane Humphries, Jacob Weisdorf

Sep 2016

Abstract:

Existing measures of historical real wages suffer from the fundamental problem that workers’ annual incomes are estimated on the basis of day wages without knowing the length of the working year. We circumvent this problem by presenting a novel wage series of male workers employed on annual contracts. We use evidence of labour market arbitrage to argue that existing real wage estimates are badly off target, because they overestimate the medieval working year but underestimate the industrial one. Our data suggests that modern economic growth began two centuries earlier than hitherto thought and was driven by an ‘Industrious Revolution’.

JEL Codes: J3, J4, J5, J6, J7, J8, N33

Keywords: England, industrial revolution, industrious revolution, labour input, living standards, wages, Malthusian model.

Reference: Paper 147

Individual View

Authors: Mark Armstrong

Sep 2016

The paper discusses situations in which consumers search through their options

in a deliberate order, in contrast to more familiar models with random search. Topics

include: the existence of ordered search equilibria with symmetric sellers (all con-

sumers first inspect the seller they anticipate sets the lowest price, and a seller which

is inspected first by consumers will set the lowest price); the use of price and non-

price advertising to direct search; the impact of consumers starting a new search at

their previous supplier; and the incentive a seller can have to raise its own search

cost. I also show how ordered search can be reformulated as a simpler discrete choice

problem without search frictions or dynamic decision making.

JEL Codes: D21, D43, D83, L11, L15, M37

Keywords: Consumer search, sequential search, ordered search, directed search, discrete choice, oligopoly, advertising, obfuscation.

Reference: 804

Individual View

Authors: James Forder

Sep 2016

It is noted that Harry G. Johnson was widely admired for his broad knowledge of economics, and particularly for the excellence and synthesizing quality of much of his writing. His discussions of the “Phillips curve” and related matters are considered. It is found that they are brief, inaccurate, and inconsistent. It is clear that, despite his reputation, they should not be treated as authoritative. It is further suggested that rather than supposing that Johnson’s knowledge and capabilities have been grossly exaggerated, it may be better to conclude that the Phillips curve was not nearly so important in the literature of the 1960s and 1970s as has been supposed.

JEL Codes: B22, B29, E61

Keywords: Phillips curve,Harry Johnson,expectations,Phillips curve,Phillips curve myth

Reference: paper 803

Individual View

Authors: James Forder

Sep 2016

Using a range of sources, it is argued that, contrary to common belief, Milton Friedman had no special influence on British policy in the 1970s and 1980s. The opposing impression appears to be derived in part from the work of Friedman’s admirers, but principally from the allegations of Margaret Thatcher’s opponents who believed they could taint her with his name.

Keywords: Friedman,monetarism,Thatcherism

Reference: Paper 802

Individual View

Authors: James Malcomson, Timothy Besley

Aug 2016

In spite of a range of policy initiatives in sectors such as education, health care

and legal services, whether choice and competition is valuable remains contested

territory. This paper studies the impact of choice and competition on different dimensions

of quality, examining the role of not-for-profit providers. We explore two

main factors which determine whether an alternative provider enters the market:

cost efficiency and the preferences of an incumbent not-for-profit provider (paternalism).

The framework developed can incorporate standard concerns about

the downside of choice and competition when consumer choice is defective (an

internality) or choice imposes costs on those who do not switch (an externality).

The paper considers optimal funding levels for incumbents and entrants showing

when the “voucher” provided for consumers to move to the incumbent should be

more or less generous than the funding for consumers who remain with the incumbent.

Finally, the model also offers an insight into why initiatives are frequently

opposed by incumbent providers even if the latter have not-for-profit objectives.

Keywords: Choice, Competition, Public Service, Not-for-profit

Reference: Number 801

Individual View

Authors: Ferdinand Rauch, Jan David Bakker, Christopher Parsons

Jul 2016

Under apartheid, black South Africans were severely restricted in their choice of location and many were forced to live in homelands. Following the abolition of apartheid they were free to migrate. Given gravity, a town nearer to the homelands can be expected to receive a larger inflow of people than a more distant town following the removal of mobility restrictions. Exploting this exogenous variation, we study the effect of migration on urbanisation and the distribution of population. In particular, we test if migration inflows led to displacement, path dependence, or agglomeration in destination areas. We find evidence for path dependence in the aggregate, but substantial heterogeneity across town densities. An exogenous population shock leads to an increase of the urban relative to the rural population, which suggests that exogenous migration shocks can foster urbanisation in the medium run.

JEL Codes: R12, R23, N97, O18

Keywords: Economic geography, migration, urbanisation, natural experiment

Reference: 800

Individual View

Authors: Sudhir Anand, Paul Segal

Jul 2016

The rise of the ‘emerging economies’ is leading to historically-unprecedented shifts in the global economy. While its implications for global poverty and the rise of a global ‘middle class’ have been documented, we present the first in-depth analysis of the changing composition of the global rich and the rising representation of developing countries at the top of the global distribution. We do so by constructing global distributions of income between 1988 and 2012 based on both household surveys and the new top incomes data derived from tax records, in order to capture the rich who are typically excluded from household surveys. We find that the representation of developing countries in the global top 1% declined until about 2002, but since 2005 it has risen significantly. This coincides with a salient decline in global inequality since 2005, according to a range of measures. We compare our estimates of the country-composition and income levels of the global rich with a number of other sources – including Credit Suisse’s estimates of global wealth, the Forbes World Billionaires List, attendees of the World Economic Forum, and estimates of top executives’ salaries. To varying degrees, all show a rise in the representation of the developing world in the ranks of the global élite. 

JEL Codes: D31, D63, O57

Keywords: top incomes, global top 1 percent, global inequality, extreme wealth

Reference: 799

Individual View

Authors: Pawel Dziewulski

Jul 2016

Abstract

The evidence from psychophysics suggest that people are unable to discriminate between alternatives unless the options are significantly different. Since this assumption implies non-transitive indifferences, it can not be reconciled with utility maximisation. We provide a method of eliciting consumer preference from observable choices when the agent is incapable of discerning between similar bundles. It is well-known that the issue of noticeable differences can be modelled with semiorder maximisation. We introduce a necessary and sufficient condition under which a finite dataset of consumption bundles and corresponding budget sets can be rationalised with such a relation. The result can be thought of as an extension of Afriat's (1967) theorem to semiorders, rather than utility optimisation. Our approach is constructive and allows us to infer the just-noticeable difference that is sufficient for the agent to differentiate between bundles as well as the "true" preferences of the consumer (i.e., as if perfect discrimination were possible). Furthermore, we argue that the former constitutes a natural measure of how well the preference revealed in the data could be approximated by a weak order. We conclude by applying our test to household-level scanner panel data of food expenditures.

Revised June 2017.

 

JEL Codes: C14, C60, C61, D11, D12

Keywords: Revealed preference, testable restrictions, semiorder, just-noticeable difference, GARP, Afriat's efficiency index, money-pump index

Reference: 798

Individual View

Authors: Dominik Karos

Jul 2016

The members of a society are faced with the decision whether or not to participate in an anti-government protest. Their utilities depend on their own decision but also on those of their neighbors in an underlying social network. They randomly observe other people's decisions, gather information on who is already active, and base their decision on their information. The model uses a Markov process (that depends on the underlying social network) to analyze who will become active over time. Two new features are essential: first, only very mild assumptions about the underlying social network are made, in particular agents can be entirely heterogeneous. Second, individuals are allowed to coordinate their decision if they mutually observe each other. The government can use political violence in order to change people's utility from being active. The probability of a revolution can thereby be reduced in the short run, but not in the long run. Under political repression protests do not increase gradually, but suddenly; and the conditional probability of a quick revolution given a protest increases if the regime turns violently against the protesters. Since large jumps in the number of activists depend on their capability to coordinate, the repression of political activism is more effective in countries where social media are not easily accessible. The findings are illustrated by data on the number of protests and revolutions world-wide depending on a country's number on the Political Terror Scale.

JEL Codes: C72, D85, O33

Keywords: Social Networks, Coordination, Strong Nash Equilibrium, Innovation Diffusion, Unanticipated Revolutions, Political Repression

Reference: 797

Individual View

Authors: Robert Allen

Jul 2016

In the 1980s, Lindert and Williamson famously revised the social tables of King, Massie,

Colquhoun, Smee, and Baxter that traverse the British industrial revolution. This paper

extends their work in three directions: Servants are removed from middle and upper class

households in the tables of King, Massie, and Colquhoun and tallied separately, estimates are

made for the same tables of the number and incomes of women and children employed in the

various occupations, income estimates are broken down into rents, profits, and employment

income. These extensions to the tables allow variables to be computed that can be checked

against independent estimates as a validation exercise. The tables are retabulated in a

standard format to highlight the changing social structure of Britain during the industrial

revolution. Changes in the social structure, the evolution of incomes by classes, and the pace

of structural transformation are revealed.

Keywords: social table, industrial revolution, national income, income distribution

Reference: 146

Individual View

Authors: Jane Humphries, Benjamin Schneider

Jun 2016

Abstract:

The prevailing explanation for why the Industrial Revolution occurred first in Britain is Robert Allen’s (2009) ‘high‐wage economy’ view, which claims that the high cost of labour relative to capital and fuel incentivized innovation and the adoption of new techniques. This paper presents new empirical evidence on hand spinning before the Industrial Revolution and demonstrates that there was no such ‘high‐wage economy’ in spinning, a leading sector of industrialization. We quantify the working lives of frequently ignored female and child spinners who were crucial to the British textile industry in the Early Modern period with evidence of productivity and wages from the late sixteenth to the early nineteenth century. Our results show that spinning was a widespread, low‐wage, low‐productivity employment, in line with the Humphries (2013) view of the motivations for the factory system.

JEL Codes: J24, J31, J42, J46, N13, N33, N63, O14, O31

Keywords: Hand spinning, Womenʹs wages, Industrial Revolution, Textiles, Great Divergence, High Wage Economy interpretation of invention and innovation

Reference: 145

Individual View

Authors: Brian A'Hearn, Nicola Amendola,Giovanni Vecchi

Jun 2016

Abstract:

The paper argues that household budgets are the best starting point for investigating a number of big questions related to the evolution of the living standards during the last two-three centuries. If one knows where to look, historical family budgets are more abundant than might be suspected. And statistical techniques have been developed to handle the associated problems of small, incomplete, and unrepresentative samples. We introduce the Historical Household Budgets (HHB) Project, aimed at gathering data and sources, but also at creating an informational infrastructure that provides i) reliable storage and easy access to historical family budget data, along with ii) tools to configure the data as it is entered so as to harmonise it with present-day surveys.

JEL Codes: N30, I31, I32, C81, C83, D60, D63, O12, O15

Keywords: household budgets, household budget surveys, living standards, inequality, poverty, survey, globalization, purchasing power parities,grouped data, poststratification.

Reference: 144

Individual View

Abstract:

This paper provides a quantitative assessment of the ‘temptation preferences' of Gul and Pesendorfer (2001) for understanding consumer life-cycle choices. I first confirm the empirical relevance of these preferences. I then show that they provide rational and straightforward explanations for many life-cycle features that appear to be inconsistent with standard preferences. These include the puzzle of ‘excess sensitivity' in consumption; the ‘retirement-consumption puzzle'; the demand for commitment devices; and the slow downsizing in housing towards the end of the life-cycle.

JEL Codes: D12, D91, E21, G11, R21

Keywords: life-cycle models, temptation preferences, housing; estimating Euler-Equations

Reference: 796

Individual View

Authors: Pawel Dziewulski, John Quah

Apr 2016

Abstract:

Supermodular functions are widely used in economics to model complementarity. For example, a firm's production function is supermodular if the marginal productivity of each factor increases with the usage of other factors. This in turn guarantees that when the price of a factor falls, the firm's demand for all factors increase. We generalise the notion of supermodular functions so the concept is also applicable to correspondences.  Supermodular correspondences arise naturally in a variety of settings. To illustrate the use of the concept and our results, we apply them to study, amongst other things, the optimising behaviour of firms producing multiple output goods and of agents with ambiguity aversion.

JEL Codes: C61, D21, D24

Keywords: supermodular correspondence, monotone comparative statics, multi- output production, ambiguity aversion

Reference: 795

Individual View

Authors: Felix Pretis, James Reade, Genaro Sucarrat

Apr 2016

Abstract:

This paper provides an overview of the R-package 'gets’, which contains facilities for General-to-Specific (GETS) modelling of the mean and variance of a regression, and Indicator Saturation (IS) methods for the detection and modelling of structural breaks and outliers. The mean can be specified as an autoregressive model with covariates (an 'AR-X' model), and the variance can be specified as an autoregressive log-variance model with covariates (a 'log-ARCH-X' model). The covariates in the two specifications need not be the same, and the classical regression model is obtained as a special case when there is no dynamics, and when there are no covariates in the variance equation. The four main functions of the package are arx, getsm, getsv and isat. The first function estimates an AR-X model with log-ARCH-X errors. The second function undertakes GETS model selection of the mean specification of an arx object. The third function undertakes GETS model selection of the log-variance specification of an arx object. The fourth function undertakes GETS model selection of an indicator saturated mean specification allowing for the detection of structural breaks and outliers. Examples of how LaTeX code of the estimation output can be generated is given, and the usage of two convenience functions for export of results to EViews and STATA are illustrated.

JEL Codes: C50, C52, C87

Keywords: general-to-specific, model selection, indicator saturation, log-variance, R

Reference: 794

Individual View

Authors: Janine Aron, John Muellbauer

Apr 2016

Abstract:

In the absence of micro-data in the public domain, new aggregate models for the UK’s mortgage repossessions and arrears are estimated using quarterly data over 1983-2014, motivated by a conceptual double trigger frame framework for foreclosures and payment delinquencies. An innovation to improve on the flawed but widespread use of loan-to-value measures, is to estimate difficult-to-observe variations in loan quality and access to refinancing, and shifts in lenders’ forbearance policy, by common latent variables in a system of equations for arrears and repossessions. We introduce, for the first time in the literature, a theory-justified estimate of the proportion of mortgages in negative equity as a key driver of aggregate repossessions and arrears. This is based on an average debt-equity ratio, corrected for regional deviations, and uses a functional form for the distribution of the debt-equity ratio checked on Irish micro-data from the Bank of Ireland, and Bank of England snapshots of negative equity. We systematically address serious measurement bias in the ‘months-in-arrears’ measures, neglected in previous UK studies. Highly significant effects on aggregate rates of repossessions and arrears are found for the aggregate debt-service ratio, the proportion of mortgages in negative equity and the unemployment rate. Economic forecast scenarios to 2020 highlight risks faced by the UK and its mortgage lenders, illustrating the usefulness of the approach for bank stress-testing. For macroeconomics, our model traces an important part of the financial accelerator: the feedback from the housing market to bad loans and hence banks’ ability to extend credit.

JEL Codes: G21, G28, G17, R28, R21, C51, C53, E27

Keywords: foreclosures, mortgage repossessions, mortgage payment delinquencies, mortgage arrears, credit risk stress testing, latent variables model.

Reference: 793

Individual View

Authors: Climent Quintana-Domeque, Damian Clarke, Sonia Oreffice

Apr 2016

Abstract:

We study the determinants of season of birth of the first child, for White non-Hispanic married women aged 25-45 in the US, using birth certificate and Census data. The prevalence of good season (quarters 2 and 3) is significantly related to mother's age, education, and smoking status during pregnancy, as well as to receiving WIC food during pregnancy and to pre-pregnancy body mass index. Moreover, those who did not use assisted reproductive technology (ART) present a higher prevalence of good season births. The frequency of good season is also higher and more strongly related to mother's age in states where cold weather is more severe, and varies with mother's occupation, exhibiting a particularly strong positive association with working in "education, training, and library". Remarkably, this relationship between good season and weather disappears for mothers in "education, training, and library" occupations, revealing that season of birth is a matter of choice and preferences, not simply a biological mechanism. We estimate the compensating wage differential for mothers who work in jobs other than "education, training, and library", which allows us to provide an upper-bound to the life-time value of good season of birth of about USD 1,000,000. Finally, we present evidence that good season of birth is positively related to health at birth conditional on several maternal characteristics.

JEL Codes: I10, J01, J13

Keywords: Quarter of birth, Fertility timing, Compensating wage differentials, Birth out-comes.

Reference: 792

Individual View

Authors: Climent Quintana-Domeque, Nicola Barban, Elisabetta De Cao, Sonia Oreffice

Mar 2016

Abstract:

Social scientists have overwhelmingly documented a strong and increasing educational homogamy between spouses. When estimating sorting by education, the presence of measurement error in the education variables or random factors in the matching process may underestimate the actual degree of assortative mating, simultaneity bias may overestimate it, while omitting other individual characteristics relevant in the marriage market may under- or overestimate it. We address these issues using an instrumental variables approach based on exploiting genetic variation in polygenic scores and controlling for population stratification. Specifically, we instrument spousal education with his/her educational polygenic score while controlling for own educational polygenic score. If the exclusion restriction is satisfied, our findings indicate that (1) assortative mating is underestimated when using OLS, and that (2) male education is correlated with other matching-relevant socioeconomic characteristics, while female education is productive per se in the matching. If the exclusion restriction is not satisfied, our evidence is consistent with (2). This suggests that individual socioeconomic attractiveness in the marriage market is multidimensional for men, but can be summarized with education for women.

JEL Codes: D1, J1, J12

Keywords: Matching, Years of Education, College, Polygenic Scores, HRS

Reference: 791

Individual View

Authors: Ian Crawford, Donna Harris

Mar 2016

Abstract:

We study the effects of social interactions on individuals’ other-regarding preferences. Using a modified dictator game and a structural choice-revealed preference approach, we compare five models of other regarding preferences and, using our preferred specification, we measure an individual’s preferences before and after subjects have interacted face-to-face in a small group. We then examine whether a change in preferences is observed. We find that these interactions do indeed change individuals’ other-regarding preferences and that these effects are highly heterogeneous. In most groups, preferences of individual group members become more homogenous as might be expected, but we also find that subjects’ preferences can converge towards those of a single key individual in the group whose preferences are both extreme and also unchanging. These key individuals often have strongly egoistic preferences and are also more likely to be male. These effects are more prevalent amongst younger subjects than older.

JEL Codes: C90, C92, D70

Keywords: Other-regarding preferences, social interactions, preference dynamics, preference heterogeneity, social conformity

Reference: 790

Individual View

Authors: Margaret Meyer, Inés Moreno de Barreda, Julia Nafziger

Mar 2016

Abstract

This paper studies information transmission in a two-sender, multidimensional cheap talk setting where there are exogenous restrictions on the feasible set of policies for the receiver. Such restrictions, which are present in most applications, can, by limiting the punishments available to the receiver, prevent the existence of fully revealing equilibria (FRE). We focus on FRE that are i) robust to small mistakes by the senders, in that small differences between the senders’ messages result in only small punishments by the receiver, and ii) independent of the magnitudes of the senders’ bias vectors. For convex policy spaces in an arbitrary number of dimensions, we prove that if there exists a FRE satisfying property
ii), then there exists one satisfying both i) and ii). Thus the requirement of robustness is, under these assumptions, not restrictive. For convex policy spaces in two dimensions, we provide a simple geometric condition, the Local Deterrence Condition, on the directions of the senders’ biases relative to the frontier of the policy space, that is necessary and sufficient for the existence of a FRE satisfying i) and ii). We also provide a specific policy rule, the Min Rule, for the receiver that supports a FRE satisfying i) and ii) whenever one exists. The Min Rule is the anonymous rule that punishes incompatible reports in the least severe way, subject to maintaining the senders’ incentives for truthtelling, no matter how large
their biases. We characterize necessary and sufficient conditions for collusion-proofness of a FRE supported by the receiver using the Min Rule and show that if such a FRE is not collusion-proof, then no other FRE satisfying ii) can be collusion-proof. We extend our existence results to convex policy spaces in more than two dimensions and to non-convex two-dimensional spaces. Finally, our necessary and sucient condition, as well as our specific policy rule, can be easily adapted if the receiver is uncertain about the directions of the biases and/or if the biases vary with the state of the world.

Revised August 2016

JEL Codes: D83,D82,C72

Keywords: Cheap talk, information transmission, multisender, full revelation, robustness

Reference: 789

Individual View

Authors: Guido Ascari, Anna Florio, Alessandro Gobbi

Mar 2016

Abstract:

A natural generalisation of the original Leeper (1991) taxonomy leads to the concepts of globally active (or passive) and globally switching policies to explain the determinacy properties of a model where both monetary and fiscal policies may switch according to a Markov process. Monetary and fiscal policies need to be globally balanced to guarantee a unique equilibrium: globally active monetary policies need to be coupled with globally passive fiscal policies, and switching monetary policies with switching fiscal policies. This new taxonomy also links the determinacy analysis to the model dynamics because it qualifies under which conditions expectations and wealth effects
arise in the Markov-switching model.

 

JEL Codes: E5

Keywords: Monetary Policy and Fiscal Policy Interaction, Markov Switching, Non-linear models.

Reference: 788

Individual View

Authors: Guido Ascari, Paolo Bonomolo Hedibert F. Lopes

Mar 2016

Abstract


The instability of macroeconomic variables is usually ruled out by rational expectations. We propose a generalization of the rational expectations framework to estimate possible temporary unstable paths. Our approach yields drifting parameters and stochastic volatility. The methodology allows the data to choose between different possible alternatives: determinacy, indeterminacy and instability. We apply our methodology to US inflation dynamics in the ‘70s through the lens of a simple New Keynesian model. When unstable RE paths are allowed, the data unambiguously select them to explain the stagflation period in the ‘70s.Thus, our methodology suggests that US inflation dynamics in the ‘70s is better described by unstable rational equilibrium paths.

JEL Codes: E31, E52

Keywords: Rational Expectations, Sunspots, Instability, Indeterminacy, Inflation, Monetary Policy.

Reference: 787

Individual View

Authors: Laurens Cherchye, Bram De Rock, Selma Telalagic Waltheror, Frederic Vermeulenor

Mar 2016

Abstract:

Do individuals divorce for economic reasons? Can we measure the attractiveness of new matches in the marriage market? We answer these questions using a structural model of the household and a rich panel dataset from Malawi. We propose a model of the household with consumption, production and revealed preference conditions for stability on the marriage market. We define marital instability in terms of the consumption gains to remarrying another individual in the same marriage market, and to being single. We find that a 1 percentage point increase in the wife’s estimated consumption gains from remarriage is significantly associated with a 0.6 percentage point increase in divorce probability in the next three years. In a multinomial model, higher values of consumption gains from remarriage raise the odds of divorce and remarriage but not of divorce and singleness. These findings provide out-of-sample validation of the structural model and shed new light on the economic determinants of divorce.

JEL Codes: D11, D12, D13, J12

Keywords: Marriage Market, Divorce, Malawi, Agricultural Production, Revealed Preference

Reference: 786

Individual View

Authors: David Hendry, Grayham E. Mizon

Mar 2016

Abstract:

We recommend a major shift in the Econometrics curriculum for both graduate and undergraduate teaching. It is essential to include a range of topics that are still rarely addressed in such teaching, but are now vital for understanding and conducting empirical macroeconomic research. We focus on a new approach to macro-econometrics teaching, since even undergraduate econometrics courses must include analytical methods for time-series that exhibit both evolution from stochastic trends and abrupt changes from location shifts, and so confront the ‘non-stationarity revolution’. The complexity and size of the resulting equation specifications, formulated to include all theory-based variables, their lags and possibly non-linear functional forms, as well as potential breaks and rival candidate variables, places model selection for models of changing economic data at the centre of teaching. To illustrate our proposed new curriculum, we draw on a large UK macroeconomics database over 1860–2011. We discuss how we reached our present approach, and how the teaching of macroeconometrics, and econometrics in general, can be improved by nesting so-called ‘theory-driven’ and ‘data-driven’ approaches. In our methodology, the theory-model’s parameter estimates are unaffected by selection when the theory is complete and correct, so nothing is lost, whereas when the theory is incomplete or incorrect, improved empirical models can be discovered from the data. Recent software like Autometrics facilitates both the teaching and the implementation of econometrics, supported by simulation tools to examine operational performance, designed to be feasibly presented live in the classroom.

JEL Codes: C51, C22

Keywords: Teaching Econometrics, Model Selection, Theory Retention, Location Shifts,Indicator Saturation, Autometrics

Reference: 785

Individual View


Loading Papers...