macroeconomic modelling using eviews
DESCRIPTION
The lecture was delivered on the Online Course on Macroeconomic Modelling, estimating and modelling on http://elearning.aneconomist.com. Students on this course will get all the lessons also in form of recorded videos and will be offered to select their specific topics in the offered course which will then be presented Live and Interactively.TRANSCRIPT
1. Time Series Modelling using Eviews2. Macroeconomic Modelling using Eviews3. Macroeconometrics using Eviews
By: Muhammad AneesSaturday, October 27, 2012
Learn Econometrics, Applied Statistics, Stata, SPSS, Eviews, R and Matlab on
http://elearning.aneconomist.com
Plan of the Session
• Some Theoretical Aspects?
• Modelling the Systems
• Proceeding with Eviews
(Eviews 7)
Macroeconomic Models
• What is Model?o Mathematical Models identifies the exact relation between included
variables?
o Macroeconomic variables are GDP, Investment, Consumption, Saving,
Imports and Exports etc. measured at the National Level?
o Macroeconomic Model is thus the mathematical function which elaborates
the relationship of included macroeconomic variables? *
• Types of Models?o Linear, Non-Linear?
o Linear: Which shows ratio of constant changes in dependent (DV) and
independent variables (IV): Slope=ratio of changes in DV & IV=
o Non-Linear Models on the other hands some variable ratios of IV and DV
Examples
• A simple model to show the macroeconomic condition is the
identification of the relationship between macroeconomic variables.
• A linear model will thus be defined for example as ?
• We should check the nature of the variables and its impact the
relation being one sided or two sided, example is oneo Investment: Autonomous and induced nature
o Consumption: Autonomous and Induced nature
o All other can be explained as above. For details, please read some
elementary books on Macroeconomic theory.
o Hence the relation between any two macroeconomic variable is not that
much straightforward to estimate.
Basic Models• Simple
Linear Relation between Two variables
Basic Models• Non-Linear
relation between two variables
Intermediate Models• Relations
between more than two macro variables
Advanced Models• DSGE
Models using Dynamic System of General Equilibrium
Flow of Modelling StrategyIt depicts the flow of identifying a model for the system
ModelThe
Variables
DataEview
s Steps
Our Todays Strategy
Identify a simple Model and Estimate the Model using Eviews 7 using the given data for Pakistan
Second Session Will continue from here and will develop a more technical model
Macroeconomic Model of Pakistan Economy: The real Sector
• The sample Modelling of Pakistan’s real economy
will develop the relationship between GDP, E , I,
GVA, (X-M: BOP or Trade Balance)?
• The model we will elaborate and estimate is GDP
= E + I + GVA+(X – M)?
• Known issues?o The relation between the macroeconomic variable
poses some technical, Econometric challenges to
estimate. And read some literature on what are these
challenges if estimated using simple Regression or
Vector Autoregressive Models/Cointegrated
Relations?
• These issues are for the next sessions, please
wait!!!!
The data
• We have extracted a sample dataset from the databank of World
bank which is available from data.worldbank.org
• The variables included are:o GDP:
o E:
o I:
o GVA
o X-M
• The data is from variables (gdp ge inv gva imp exp)
• We take log of each series so when the log difference is used, it will
show growth rates of the series/variable
Econometric Techniques• OLS
o Please read the first section of Growth Models reading which will explain each step we proceed
to run the regression using OLS and related tests.
• Unit Rooto We will need these types of tests when we need to run a regression model using time series
data
o As we estimate the model (any other model can be used equally) using OLS, so the results will
be SPURIOUS/not be consistent.
o In this case, we need to estimate the stationarity of the series. If series are stationary, then we
will be using OLS and may/may not include the trend/time variable
o If the series are not stationary then we will test for whether each series is uniformly/same
integrated. Which means they become stationary at the same level of differencing.
o Detailed discussion on these and the following contents will be provided tomorrow. This is
introduced here to convince you that we can not rely on the OLS estimates of our model using
time series data.
• Cointegration
• VAR
• VECM
Appendix
• Estimating the Model using OLS
• Testing for Issues in the estimated Models
• Some Econometric tests which could be used to determine whether
the model estimated is best fitted
• Why we need to use alternative/Time Series regression Models?
Read the Unit Roots, VAR and Cointegration Testing topics from the
given reading material. We will improve our current model in second
session.
• Contact information: Please use only [email protected] for
discussion regarding these contents. This email is specific to course
related discussions.
Please read the notes below for details
Workfile Dialague to create workfile
New Workfile where data will be imported.
Import Wizard
Import Wizard: Data Specification
Dated Workfile with Complete dataset
Estimating the Macroeconomic Model we defined.
Regression Results
OLS Examples where it is Spurious
What Then if OLS is Spurious
• If we use most of the Time Series data for running OLS,
then results are spurious if the Data is Not Stationary/Unit
Root. Now how to test Unit Roots. Let us what we can do
using Eviews.
Unit Roots Testing
Unit Roots Testing
Unit Root Results
Unit Root test with First Difference
Unit Roots and Order of Integration
• If we find that all the series are unit root or stationary then decide as
following:o All Series are not Unit Root or say they are stationary in Levels, then these
are called Integrated of Order Zero and termed as I(0)
o All the series are Unit Root at Levels and Stationary at First Difference then
The are Integrated of Order One or I(1)
o All the series are unit root even at First Differences but Stationary at
Second Differences then These are Integrated of Order Two or I(2).
o And Hence On…
o We proceed in the same lines and once the Integration is determined, then
we can test whether they are Co-Integrated. This is for tomorrow along with
Theory, Practice and Issues.
We have learn Step by Step
• Today we started modelling simple Macroeconomic
Scenarios and this can be extended to any type of models
and enclosure of any type of and list of macroeconomic
variables. Do your practice on the following model and
determine where the series are stationary using the Time
Series data.
• Note description of variables are available in Dataset
second sheet.
Outcome of Todays Session
• We hope to know now:
• Modelling any Macroeconomic Scenario
• Estimate the using Basic regression and test for whether
regression is Spurious
• When Spurious how to proceed with further our model
estimation.
• Thanks for your attendance.
• Please email any confusion regarding initiating your
modelling strategy.
• Also please read the suggested contents so we are
confident for tomorrow session.