Project Assignment

Overview

Economists are called upon to apply mathematics and statistical methods to economic data in order to identify the effects of events, policies, or particular actions. In the previous econometrics course (ECO 620), you practiced using regression analysis, which is useful but has some serious limitations and is not appropriate in many settings. As an economist, you will often be asked to analyze data that has serious nonlinearity or is not normally distributed, and you must be able to rise to this challenge. In order to practice the skills involved, you will create a final project in which you will prepare an econometric analysis of a business, policy, or economic issue of your choice, utilizing advanced methods studied in this course (forecasting, nonparametric analysis, maximum likelihood, and so on).

You should choose a topic of personal or professional interest to you. You may revisit the topic you selected in ECO 620 or choose a new topic. A literature review of peer-reviewed publications will be necessary in order to familiarize yourself with possible ways to address the issue empirically, using advanced econometric methods. You will build an empirical model to analyze the issue and use the data to conduct econometric analysis. You will then explain your findings to both technical and nontechnical audiences.

The project is divided into two milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three and Six. The final project will be submitted in Module Nine.

Outcomes

This assessment will evaluate your mastery with respect to the following course outcomes:

• Develop empirical strategies based on available data and limitations of related econometric regression models

• Defend the relevance of econometric technique selection when solving economic research questions

• Execute diagnostic and adjustment processes through statistical software that avoid common problems in advanced econometric techniques

• Interpret limitations of advanced econometric techniques for their effects on the validity of research results

• Produce actionable insights for addressing business issues based on statistical and economic significance of results in advanced econometric analysis

• Communicate empirical processes and results of advanced econometric models to technical and nontechnical audiences that inform future actions

Prompt

This project requires you to prepare an econometric analysis of a business, policy, or economic issue of your choice, utilizing advanced methods studied in this course. Specifically, the following critical elements must be addressed:

I. Description

A. What issue are you addressing? Why is your research question relevant to the study of economics?

B. Identify the target audience(s) for your paper. Is each audience technical or nontechnical? (For example, are they general readers, managers, or political decision makers?) Why would your research be relevant for the audience(s)?

II. Literature Review

A. What economic methods and techniques have been used to study this issue or a similar one? How has the issue been addressed econometrically? Were these methods and techniques the most appropriate ones for this study? Why is regression unsuitable for this task?

B. What are the hypotheses you plan to test? How do they translate to empirical models?

III. Data

A. What data will you use in your empirical work? What is the source of your data? Why is this particular data set appropriate for the study?

B. What does your data look like (e.g., summary statistics, scatter plots, etc.)? What relationships can be gleaned by simple data screening? What are the implications of these relationships?

C. What limitations could your data impose on the choice of empirical method? What are the effects of these limitations?

IV. Empirical Approach

A. What empirical method(s) do you propose and why? Why is this method most appropriate and preferable to simpler models, such as regression?

B. What are the limitations of your proposed empirical method? What are possible alternative advanced methods that can be used? Be sure to address causes for these limitations, such as problems with the data or with interactions between variables.

C. What is your model specification? What functional form of data do you use and why?

V. Results and Robustness

A. What are your preliminary results from baseline estimations in the statistical software? What is their relationship with the original hypothesis and research question? Is there a difference between the baseline estimation and the ultimate choice of the model? Discuss.

B. Which violations of the chosen model's assumptions do you anticipate? Which diagnostic tests do you employ to check for presence of violations of model assumptions?

C. What are your secondary results from your test run through the statistical software? Interpret these test results and determine the presence or absence of problems.

D. Are your results affected by the corrections? Are they affected in a significant way (e.g., change of sign of coefficients or change in statistical significance)?

E. Are your results statistically significant? Are they economically significant? Are some variables more significant than others? How does this relate to the original hypotheses and research questions? Discuss.

VI. Conclusion and Recommendations

A. What are your actionable insights and/or recommendations based on your results? Why was it necessary to use advanced techniques to estimate them?

B. What are the overall results of your study? Summarize any limitations, caveats, and possibilities for further actions by your audience. Remember you are presenting this information to decision makers and other key stakeholders. Be sure to keep nontechnical audiences in mind.

Milestones

Milestone One: Research Question, Literature Review, and Data

In task 3-1, you will submit a two- to three-page paper on the research question, literature review, and data for your final project.

Milestone Two: Approach and Results

In task 6-1, you will submit a two- to three-page paper on the approach and results you will discuss in your final project.

Project Submission: Econometric Analysis Paper

In task 9-1, you will submit your final project. It should be a complete, polished artifact containing all of the critical elements of the final project. It should reflect the incorporation of feedback gained throughout the course.