Economics 518B
Seminar on Applied Econometrics II: Time Series Techniques and Applications

Spring 2001, TTh 11:30-1:00, Eads 102

James Morley, Assistant Professor of Economics
Office Hours: TTh 1:00-2:00 or by appointment, McMillan 243
Tel: (314) 935-4437
Email: morley@wueconc.wustl.edu

Class Announcements
(Most recent announcement posted on January 19)

Homework Assignments
(Pdf files of assignments are posted here)

Presentation Schedule

COURSE DESCRIPTION

This is a survey course on time series econometric techniques, with applications in macroeconomics, international finance, and finance.  Topics include ARMA models, the Box-Jenkins methodology, and forecasting; VARs and impulse response functions; time trends, unit roots, and structural breaks; spurious regressions; trend/cycle decomposition methods, including Kalman filtering; spurious cycles; cointegration; ARCH models of volatility, and Markov-switching models. Following the bulk of the applied literature, we will stick to the classical framework and the time domain. While there are two textbooks, a lot of emphasis will be put on readings from economics journals.
 

OBJECTIVES

An important objective of this course is to survey the core literature in applied time series econometrics. However, the primary objective is to stimulate interest in the time series approach, with the ultimate aim of providing students with the necessary tools to conduct their own original research in the area. To this end, the course requires a research project, discussed below, rather than any written exams.
 

PREREQUISITES

A good grasp of basic mathematical statistics and linear algebra is necessary for the course. The mathematical appendix in the Hamilton textbook provides a good summary of useful mathematical and statistical tools. I will assume everyone has taken the first year econometrics sequence.
 

REQUIREMENTS

There will be a series of homework assignments that will involve generating and interpreting computer output from EViews and GAUSS. There will also be a major research project. There are no exams for the class.

The research project will have three stages. In the first stage, students will make an appointment to meet with me in order to propose a topic. While original research that applies the time series techniques discussed in the course would be most welcome, it is expected that students will take an existing empirical study and extend it by changing, or at the very least updating, the data used in the original study. Potential source papers are denoted with asterisks in the reading list below. Other papers will be allowed, but must be cleared with me first. I will allow students to work in pairs, if they choose. However, if you do, you must make it clear to me how you plan to “divvy up” the work in an equitable fashion. The second stage of the project will be an in-class presentation. The presentations will be sometime around the middle of the semester. Therefore, it is not expected that students will report on any final results. Instead, students should try to motivate why their project is interesting and teach some of the details of its implementation in a way that engages the other students. For the final stage, students will submit a paper that motivates the issue, presents in detail the implementation of the econometric techniques, and summarizes the results.
 

TEXTBOOKS

There are two required texts for the course:

Time Series Analysis, by James D. Hamilton, Princeton University Press, 1994.

State-Space Models with Regime Switching, by Chang-Jin Kim and Charles R. Nelson, MIT Press, 1999.

Other texts that students may find useful are the following:

Econometrics, by Fumio Hayashi, Princeton University Press, 2000.

The Econometric Modelling of Financial Time Series, Second Edition, by Terence C. Mills, Cambridge, 1999.

The Econometrics of Financial Markets, by John Y. Campbell, Andrew W. Lo, and A. Craig MacKinlay, Princeton University Press, 1997.

Applied Econometric Time Series, by Walter Enders, Wiley, 1995.

Time Series for Macroeconomics and Finance, by John Cochrane, Unpublished Lecture Notes, 1997. Available on Cochrane’s website at the University of Chicago Graduate School of Business.
 

TOPICS

1. Overview


2. ARMA Models, the Box-Jenkins Methodology, and Forecasting


3. VARs and Impulse Response Functions


4. Trend/Cycle Decomposition


 

5. Spurious Cycles


6. Time Trends, Unit Roots, and Structural Breaks


 7. Cointegration


8. Markov Switching and Asymmetry


9. ARCH Models of Volatility

SOME OTHER PAPERS OF INTEREST

International Finance


Finance



Last Updated: January 19, 2001