Term Paper Guidelines

A term project is required in this course. The project will introduce you to applied research and the use of econometrics. The basic purpose of this course is to prepare students to carry out their own econometric study. Students will be asked to formulate an original econometric model, collect data relevant to the model, use econometric techniques to estimate the model, and interpret the results of the estimation. Econometrics is best learned by actually doing an econometric study. Only then will the "uninitiated" learn the power as well as the pitfalls of econometrics. This handout will outline the steps to writing an econometrics paper.
 
You are required to develop a topic and collect the necessary data for econometric analysis. You need to begin early and, preferably, find a topic of interest to you. You may wish to draw on material from another course or combine this term project with a requirement for another course. I would encourage you to do so only if data are readily available. The project will be done individually. The entire project is due on Wednesday, January 22, 2008 before 4:30 pm; no negotiations. I deduct 5 points for every hour or part of an hour, after that time. A short written proposal is due by the midpoint of the semester, December 17, 2008.  

Term Project Outline

(10) Introduction - present the "problem" you are addressing. This should be similar to your first installment, but will include corrections suggested for your first draft. The Introduction should be at least one page in length.

(10) Model Specification - present a conceptual model that follows your problem statement. In this section, you must draw on economic theory. What is the appropriate theory? What are the variables in the model and how are they related? Discuss the importance of each variable and draw some graphs to support your arguments; use your Microeconomic or Macroeconomic theory texts. What are the "expected" signs for the parameters in the assumed model you have specified (again according to theory)? (Note: these are your hypotheses.)

The model and the data are the starting points of an econometric project. The first step in formulating a model is to select a topic of interest and to consider the model's scope and purpose. In particular thought should be given to the objectives of the study, what boundaries to place on the topic, what hypotheses might be tested, what variables might be predicted, and what policies might be evaluated. Close attention must be paid, however, to the availability of adequate data. In particular the model must involve causal relations among measurable variables.

The topic selected can be economic or noneconomic. It could be a particular market (the market for Pitzer graduates, the market for economists, the market for ice cream, the markets for private education), a process (economic development, inflation, unemployment), demographic phenomena (birth rates, death rates), environmental phenomena (water quality, air quality), political phenomena (elections, voting behavior of legislatures), some combination of these, or some other topic.

You are free to choose the topic of your choice. Former students have written papers on a wide variety of subjects. Some paper titles are presented below:

"Air pollution and Population"

"Birth Rates, Death Rates, and Economic Growth in Developing Economies"

"Demand for and Supply of Higher Education"

"Differential Growth in U.S. Cities"

"Discrimination in the Retail Food Markets"

"Divorce Rates, Birth Rates, and Female Participation in the Labor Force"

"Economic and Social Determinants of Infant Mortality in the United States"

"The Effect of Unemployment on Crime"

"Elections and Money"

"Medical School Applications"

"Police Expenditures and the Deterrence of Crime"

"The Relationship between Exports and Growth in Less Developed Countries"

"Unionization and Strike Activities"

These papers are generally interested in the impact of some independent variable X on a dependent variable Y. But since there are many variables X that have influence on the variable Y, it is important to include all those variables on the right hand side of the equation.

To ensure that the model is both interesting and manageable, it should contain at least three to four independent variables on the right hand side. The model should be formulated as an algebraic, linear, stochastic equation along with a corresponding verbal statement of the meaning of the equation. The expected signs of all the coefficients should be considered. All relevant multipliers, short-run and long-run, should be identified and considered.

Remember that these ideas above are merely examples of reasonable topics. You should be original and follow your own interests. Perhaps the best choice of a topic is one in which you have prior experience or knowledge. Did you take a course on economic development or do you like to watch basketball games? You will have a head start in these areas because you are already familiar with the basic issues. If you feel particularly uninspired, take a look at Bernt, The Practice of Econometrics, Addison-Wesley, 1991. In any case, you will have to identify and study the previous literature on the subject. Good sources are professors, EconLit (available in KIMEP Library). The relevant literature should indicate, or at least suggest, a model and also hypotheses to be tested, variables to be forecast, and/or policies to be evaluated. It can also be a useful guide to the relevant data.

(25) Data - define each of the variables that will be used in your econometric model. (Provide a complete set of data on diskette.) Indentify all sources that you used to collect the data in proper bibliographic form. Also, discuss briefly the sample that you used. Was it a time-series? If so for what years were data collected? You must also provide graphic presentations of the data including bar graphs, charts and tables listing descriptive statistics (means, standard deviations) for all variables.

Data form an essential ingredient in any econometric study, and obtaining an adequate and relevant set of data is an important and often critical part of the econometric project. Data must be available for all the variables in the model.

National Statistical Abstracts, Statistical Yearbooks, or Statistical Handbooks, published annually by most major countries provide both summary statistics and references to primary sources.

Data can be either time-series or cross-section. For this project it is probably best not to pool data of the two types. Also it is best to avoid data sets which are too small, say less than thirty observations. The data should be examined, and if necessary, refined to make them suitable for the purposes of the model. For time-series data it may be necessary to use seasonal adjustments or perhaps to eliminate certain trends. For both time-series and cross-section consideration should be given to whether to divide the data into separate samples or perhaps exclude certain observations. Thus in time-series data it may (or may not) be appropriate to exclude war years or years of a recession. In a cross-section of nations it may be inappropriate to include all countries that are UN members. The developed countries might be treated as one group and the developing countries as another group. Dividing the data this way into subsamples not only leads to more homogenous data sets but also facilitates the study by allowing comparative analyses.

(35) Estimation and Results - identify the estimation process, and present the results. The parameter estimates must be discussed. What do they mean? Are they consistent with your expectations from theory? Are the parameter estimates statistically different from zero? (Avoid drawing pictures of your t-tests. Instead, discuss them, verbally, within your the text of your paper. Explain in the text why you found that the estimates were or were not statistically different from zero.) How about the model? Does the regression model fit the data well? Comment. Does the regression model explain a statistically significant portion of the variation in the dependent variable? What other models did you try to estimate? Any other results that should be mentioned? Does there appear to be a problem with the data?

After both the model and data have been developed, the next step is to utilize econometric techniques to estimate the model. Your final paper is expected to use multiple regression analysis to estimate your multivariate model and test relevant hypotheses. You can use EViews or any other statistical package for the statistical analysis. Basic statistical packages include Minitab and Excel. For careful work in econometrics you will want to use EViews, STATA, SAS, TSP, LimDep, SPSS or Shazam. For this project it is best if the dependent variable is a quantitative variable. Do make sure that you have enough observations for all the variables and that the dependent and independent variables show some variation over the observations. You should not be estimating any identities, or using the dependent variable on the right hand side of the equation unless it is lagged.

(10) Summary and Conclusions - what conclusions do you reach? What are the important results that should be summarized. This section should be an effective ?stand-alone? summary of your work. It should be able to inform a reader what you did in a concise manner - like 1-2 pages at most.

These points total to 90. An "A" paper must include some bells and whistles. These are extra goodies beyond the standard multiple regression such as nonlinear specifications, careful checks for violation of assumptions, cool theoretical additions (like graphs of theoretical models), forecasting, etc., things that are beyond the ordinary.

The final paper must be well written. I deduct for grammatical errors, spelling errors and poor sentence and paragraph structure.

The paper should be approximately 10-15 pages in length. If it is much shorter, it should be very good. If it is much longer, it should be very important. The paper has to be typed with 1.5 line spacing using Times New Roman font at 12pt font size. Leave 2.5 cm (1 inch) space on each margin. You have to follow these typing rules.

Unless there are reasons for doing otherwise, the best style to use in the final write-up of the econometric project is that of an article in a scholarly journal, a style that is both clear and brief, though never sacrificing clarity for the sake of brevity.

The following outline is suggested for your paper:

I. Title Page
II. Introduction
III. Review of Previous Literature
IV. Specification of the Model
V. Data Description
VI. Results
VII. Discussion
VIII. Conclusions
IX. Bibliography

Appendix: Data
If reasonable, provide a table of all the data used. At a minimum, provide the summary statistics for the data.

Submission: You should submit  "one hard copy" of your paper. Also, include a disk copy of your data, programs, program output and paper. You can provide these via e-mail if you like.