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Summary and Conclusions. Carrying Out an Empirical Project. Choosing a Topic. Start with a general area or set of questions Make sure you are interested in the topic Use on-line services such as EconLit to investigate past work on this topic

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summary and conclusions

Summary and Conclusions

Carrying Out an Empirical Project

Economics 20 - Prof. Anderson

choosing a topic
Choosing a Topic
  • Start with a general area or set of questions
  • Make sure you are interested in the topic
  • Use on-line services such as EconLit to investigate past work on this topic
  • Narrow down your topic to a specific question or issue to be investigated
  • Work through the theoretical issue

Economics 20 - Prof. Anderson

choosing data
Choosing Data
  • Want data that includes measures of the things that your theoretical model imply are important
  • Investigate what type of data sets have been used in the past literature
  • Search for what other data sets are available (for example, ICPSR)
  • Consider collecting your own data

Economics 20 - Prof. Anderson

using the data
Using the Data
  • Create variables appropriate for analysis
  • For example, create dummy variables from categorical variables, create hourly wages, etc.
  • Check the data for missing values, errors, outliers, etc.
  • Recode as necessary, be sure to report what you did

Economics 20 - Prof. Anderson

estimating a model
Estimating a Model
  • Start with a model that is clearly based in theory
  • Test for significance of other variables that are theoretically less clear
  • Test for functional form misspecification
  • Consider reasonable interactions, quadratics, logs, etc.

Economics 20 - Prof. Anderson

estimating a model continued
Estimating a Model (continued)
  • Don’t lose sight of theory and the ceteris paribus interpretation – you need to be careful about including variables that greatly alter the interpretation
  • For example, effect of bedrooms conditional on square footage
  • Be careful about putting functions of y on the right hand side – affects interpretation

Economics 20 - Prof. Anderson

estimating a model continued1
Estimating a Model (continued)
  • Once you have a well-specified model, need to worry about the standard errors
  • Test for heteroskedasticity
  • Correct if necessary
  • Test for serial correlation if there is a time component
  • Correct if necessary

Economics 20 - Prof. Anderson

other problems
Other Problems
  • Often you have to worry about endogeneity of the key explanatory variable
  • Endogeneity could arise from omitted variables that are not observed in the data
  • Endogeneity could arise because the model is really part of a simultaneous equation
  • Endogeneity could arise due to measurement error

Economics 20 - Prof. Anderson

other problems continued
Other Problems (continued)
  • If you have panel data, can consider a fixed effects model (or first differences)
  • Problem with FE is that need good variation over time
  • Can instead try to find a perfect instrument and perform 2SLS
  • Problem with IV is finding a good instrument

Economics 20 - Prof. Anderson

interpreting your results
Interpreting Your Results
  • Keep theory in mind when interpreting results
  • Be careful to keep ceteris paribus in mind
  • Keep in mind potential problems with your estimates – be cautious drawing conclusions
  • Can get an idea of the direction of bias due to omitted variables, measurement error or simultaneity

Economics 20 - Prof. Anderson

further issues
Further Issues
  • Some problems are just too hard to easily solve with available data
  • May be able to approach the problem in several ways, but something wrong with each one
  • Provide enough information for a reader to decide whether they find your results convincing or not

Economics 20 - Prof. Anderson

further issues continued
Further Issues (continued)
  • Don’t worry if you don’t “prove” your theory
  • With unexpected results, you want to be careful in thinking through potential biases
  • But, ff you have carefully specified your model and feel confident you have unbiased estimates, then that’s just the way things are

Economics 20 - Prof. Anderson