QM2 Econometric ProjectAs part of the course requirements you have to undertake an econometricevaluation of an economic issue using data that you have gathered eitherfrom the host of data sets now available on the web, or that you haveassembled yourself from data published in journals or in official sources.The project is worth 20% of the total marks for this courseThe data set must contain a minimum of 3 variables, (one dependentvariable and at least 2 right hand side variables to be added to a constantterm). You should concentrate on estimating a multiple (rather than simple)regression model. You cannot use the data sets used in the problem sets orlectures. You must find your own data (with 2 exceptions see below)You should have a minimum of 50 observations in your regressions.Anything less will be penalised heavily.The model should be a causal one, (ie the right hand side variables shouldexplain the dependent variable, not the other way round). This also means, forexample, that you should not estimate identities like a national accountsmodel of the form Y=C+I+G+(X-M). This is an accounting identity and so thecoefficients shouldn’t be anything other than one, barring measurement error).The econometric results should include a thorough statistical evaluation usingthe full range of (relevant) diagnostic tests highlighted during the course. Donot use tests just for the sake of it. There are no marks to be gained by doingcountless irrelevant tests. Only use tests that are relevant to the type of dataand economic relationship you are trying to estimate. (For the purposes of theproject assume that a sample of 50 or more observations is enough to makeany asymptotic tests valid).This project should be completed and handed in (via Turnitin) during earlierweeks of the second term (date and time tbc)In order for the project to be marked at all, you must also provide a disk orUSB containing i) the data you have used ii) the Stata output log containingyour regression output (any output – including graphs – generated using anyother package will be penalised) and iii) a copy of the projectDo NOT use a package other than Stata to do the project. Do NOT use Statacommands unless they were covered in the course. This can often causeconfusion that this is your own work. Nor is it necessary. The project is ademonstration that you understand and can implement the (relevant)techniques/tests covered in the course. This includes mastering andunderstanding relevant Stata commands.Do NOT write your name on the project – just give your student numberYou should aim for a maximum of 2,500 words or around 8 pages of text, 2to 3 tables of results and 2 or 3 figures (not including the log file)Pleaseprovide a word count on your cover page.Project ObjectivesThe idea is to choose an economic issue which you find interesting, outline atheory and a set of testable hypotheses that follow on from that. Then test thetheory empirically using the tools you have learned during this term’s course.The dissertation should read something like a typical article that you wouldfind in a (non-technical) academic journal like the Journal of EconomicPerspectives or the May Papers & Proceedings volumes of the AmericanEconomic Review, (the collection of back issues are in the library).Choosing a TopicThe most important thing is to choose a project that is feasible, that can befinished within one month from start to finish and still allow you time to workon your other subjects. This means confining your topic to a simple issue.Also it is a good idea to choose a topic that you are interested in, rather thanone you fell you ought to do. The more you are interested the easier theproject will be. Do not write the theoretical part of your project until you knowyou have data that can be used to test your hypotheses.One good way to find a topic to study is to read the economic pages of thebroadsheet newspapers and/or academic articles summarised in overviewjournals like theJournal of Economic PerspectivesorJournal of Economic Literatureboth of which are in the library. In addition there are specialist journals, (andtherefore more technical), such as theAmerican Economic Review, Economic Journal, Quarterly Journal ofEconomics, Journal of Labor Economics, Journal of IndustrialEconomics, Journal of Development Economics, Journal of Financewhich should all be good sources of current issues concerning academiceconomistsDataThere are a large variety of data sources on the internet that should meet yourneedsMany UK macroeconomic statistics, (inflation, unemployment, gdp etc), canbe downloaded from the Office for National Statistics websitehttp://www.ons.gov.uk/ons/index.htmlUK Regional data can be found herehttp://www.nomisweb.co.ukThe bized site also contains access to official UK data alongside companyaccount data and some international data.http://www.bized.co.uk/learn/economics/index.htmYou can find stock market data at the Stock Exchange’s web sitehttp://www.londonstockexchange.com/or from yahoo http://uk.finance.yahoo.com/q/hp?s=%5EFTSEor from the Bank of Englandhttp://www.bankofengland.co.uk/statistics/pages/default.aspxA very good source of international data both cross section and time series isgiven at the Resources for Economists websitehttp://rfe.org/showCat.php?cat_id=2and also the Statlib website http://lib.stat.cmu.eduThe World Bank also has data http://worldbank.organd there are lots of data and ideas athttp://www.economagic.com/ and http://pwt.econ.upenn.eduThe library also has a useful link to some sitesFor those of you interested in working with cross section data. I have put 2different UK cross section data sets on the course web siteHealth, Wages: GHS_project.dta – which has information on wages, health,smoking, drinking, education and other socio-demographic characteristics ofindividuals taken from the General Household Survey(you can find a codebook giving details of the variables athttp://www.esds.ac.uk/findingData/snDescription.asp?sn=5804Consumption: Food_project.dta – which has information on householdspending on various consumer items taken from the Expenditure & FoodSurvey(you can find a codebook giving details of the variables athttp://www.esds.ac.uk/findingData/snDescription.asp?sn=5375You will have to choose which variables to model to make sure the data arefree of missing values and give economic reasons for your choice.These are just guides to help you. You may, of course, find your own data.AnalysisIdeally your project should look and be structured like an article you can findin any of the economic journals listed above. You are strongly advised to readsome articles to get a feel for how they are presented.(there is an example article on the course moodle page)So your project should include the following sections:Theoretical FrameworkSet out the economic theory underlying your project and use it to specify amodel and the resulting hypotheses to be tested. Set out your priorexpectations of the likely signs and magnitudes of the coefficients. Discussany econometric problems you expect to encounter.DataDiscuss the sources for your data. Give the exact definition of variables (in aTable in an appendix) and sample period, Describe the main features of thedata using a table of sample means and their standard errors. Graph thetrends in the dependent and, perhaps, the independent variables. Commenton the main trends/features.Econometric MethodOutline the econometric techniques used to estimate your model, (eg.ordinary least squares with corrections for heteroskedasticty/autocorrelation).You need to convince the reader that you have made the right choice ofestimation technique. Evaluate the model using the set of (relevant)diagnostic tests covered in the lectures. (Eg, Box-Cox, Ramsey Reset,Forecasting). Do NOT report the results of the tests one after another like ashopping list. Report the tests for each model at the bottom of a column ofestimates. (Again read a journal article for hints on presentation).ResultsOutline your results in tabular form, (check with a journal if you are unsure asto how to present your results). The Stata command “outreg” will helpconsiderably with you inputting the results in tabular form. State whether yourhypotheses are accepted or rejected. Comment on the results and on anydiagnostic tests you have used.ConclusionGive an overview of your hypotheses and main resultsReferencesAlways list the data sources and articles that you may have read at the end ofthe discussion. Tables and Figures should come after the references.