EC 392M: ECONOMETRICS III
Department of Economics
University of Texas at Austin


Eugenio J. Miravete - University of Texas at Austin and CEPR.

Office hours: Tuesdays, 14:00 - 16:00 or by appointment.

TA: Zhan Shi. Office hours TBA.

We will meet on Tuesdays from 17:00 to 20:00 in BRB 2.136.

This class is intended to be a bridge between your previous courses and your next stage in the program: writing a dissertation. Take it seriously. It may prove more useful that you might think now. I will stress practical issues such as identification, motivation of the paper and importance of the research to succeed in academia. But do not worry, there will be enough methodology and notation in this first half of the semester to make you believe that I am not honoring my word.

I will cover the literature on empirical single agent dynamic models. There are several reasons to address dynamic models in this class. First, many economic decisions such as investment, R&D, innovations and others have dynamic consequences and thus, they should be approached by not ignoring their dynamic features. Second, developments in computing have made possible to consider much more complex problems than just one decade ago. Third, it is a vibrant field today, offering interesting research and job opportunities if you are able to master the techniques and come up with a sensible application. And last but no least, I want to avoid having a fifth year macro student walking into my office and explaining his/her dynamic model to me without previous knowledge of this literature (nor that his/her model is indeed a micro model).

The methods discussed in class have been applied in many areas. One important set of contributions that I will only mention from time to time are the dynamic structural models of labor. The other fast growing field deals with entry decisions and dynamic games. I will cover some of these applications in ECO 384K.

I have included links to the papers that I suggest to read for each topic (some of these links will only work from campus computers). I have made links to either to JSTOR or to freely available versions on the web. If some paper is not linked I guess that you will have to visit the library. I will assume that you have attempted to read the paper in advance so that we can discuss it rather than just digest what I throw at you.

I will update this page regularly with additional readings. I will post my presentations shortly before being delivered. I prefer to have the freedom of changing at the very last minute what I am going to teach depending on how the previous presentation goes. Remember, only the required paper reading will include a link.

At the end of this page you will also find links to the assignments for this part of the course and their due dates.

READINGS

I know that many of you are aware of the discussion between applied economists that favor reduced form methods over structural models. I am not going to get into that fight. In my work I have employed both methodologies at about 50/50 split. By nature though, dynamic models belong to the structural category. A good methodological paper to read on this subject is:

• Rosenzweig, M. R., and K. I. Wolpin (2000): “Natural "Natural Experiments" in Economics”, Journal of Economic Literature, 38, 827-874.

It is not a required reading, but at some point you should find time to go over it.

General References:

• Ackerberg, D., L. Benkard, S. Berry and A. Pakes (2006): "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, Vol. 6. North-Holland.

• Aguirregabiria, V., and P. Mira (2010): "Dynamic Discrete Choice Structural Models: A Survey,'' Journal of Econometrics, forthcoming.

• Doraszelski, U., and A. Pakes (2006): "A Framework for Applied Dynamic Analysis in Industrial Organization," Handbook of Industrial Organization, Vol. 3. North-Holland.

• Eckstein, Z. and K. Wolpin (1989): "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models," Journal of Human Resources, 24, pp. 562-598.

• Miller, R. (1997): "Estimating Models of Dynamic Optimization with Microeconomic Data," Handbook of Applied Econometrics: Microeconomics, Blackwell.

• Pakes, A. (1994): "Dynamic Structural Models: Problems and Prospects," Advances in Econometrics, Sixth World Congress, Cambridge.

• Rust, J. (1994a): "Structural Estimation of Markov Decision Processes," Handbook of Econometrics, Vol. 4. North-Holland.

• Rust, J. (1994b): "Estimation of Dynamic Structural Models: Problems and Prospects - Discrete Decision Processes," Advances in Econometrics, Sixth World Congress, Cambridge.
  

Motivation and Introduction. January 19. (Presentation)

• Pakes, A. (1986): "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, 54, 755-784.

Nested Fixed Point Algorithm. January 26. (Presentation)

• Rust, J. (1987): "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, 55, 999-1033.

NFXP Identification and Applications. Frebuary 2. (Presentation)

• Das, M. (1992): "A Micro-Econometric Model of Capital Utilization and Retirement: The Case of the Cement Industy," Review of Economic Studies, 59, 277-297.

• Kennet, M. (1994): "A Structural Model of Aircraft Engine Maintenance," Journal of Applied Econometrics, 9, 351-368.

Conditional Choice Probability. February 9. (Presentation)

• Hotz, J., and R. Miller (1993): "Conditional Choice Probabilities and the Estimation of Dynamic Models,'' Review of Economic Studies, 60, 497-529.

CCP Extensions. February 16. (Presentation)

• Aguirregabiria, V., and P. Mira (2002): "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, 70, 1519-1543.

• Hotz, J., R. Miller, S. Sanders, and J. Smith (1994): "A Simulation Estimator for Dynamic Models of Discrete Choice," Review of Economic Studies, 61, 265-289.

CCP Applications. February 23. (Presentation)

• Aguirregabiria, V. (1999): "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, 55, 275-308.

• Hollifield, B., R. Miller, and P. Sandas (2004): "Empirical Analysis of Limit Order Markets," Review of Economic Studies, 71, 1027-1063.

• Slade, M. (1998): "Optimal Pricing with Costly Adjustment: Evidence from Retail Grocery Stores," Review of Economic Studies, 65, 87-108.

Approximation to Continuous State Variables. March 2. (Presentation)

• Melnikov, O. (2000): "Demand for Differentiated Durable Products: The Case of the U.S. Computer Printer Industry," mimeo, Yale University.

• Hendel, I., and A. Nevo (2006): "Measuring the Implications of Sales and Consumer Stockpiling Behavior,'' Econometrica, 74, 1637-1673.

More Applications. March 9. (Presentation)

• Cullen, J., and O. Shcherbakov (2010): "Dynamic Response to Environmental Regulation in the Electricity Industry," mimeo, University of Arizona.

EVALUATION: Reports, Assigments, and/or Final Exam. The assignments below account for 50% of your total grade in this class. Percentages between parentheses indicate the weight of each assignment out of this 50%. Find here an OUTLINE of how you should write a referee report.

• Assignment 1: A short assignment will be posted HERE on February 2nd. Due at the beginning of class on Tuesday, February 16th. (30%)

• REPORT: Cullen, J., and O. Shcherbakov (2008): "Dynamic Response to Environmental Regulation in the Electricity Industry," mimeo, University of Arizona. Due at the beginning of class on Tuesday, March 9th. (20%)

• ASSIGNMENT / FINAL EXAM: An assigment will be posted HERE on March 2nd. Due by 5:00pm on Friday, March 12th. (50%)