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 moodle@aneconomist.com 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.