Econ 439 Spring 2020
Applied Econometrics: Macroeconomic and Finance Forecasting
Ray C. Fair
Prerequisites: at least one semester of econometrics, preferably two,
and intermediate macroeconomics.
Description This course has an applied econometrics focus. The focus is on forecasting macroeconomic and financial variables The requirements are three empirical papers. The first, worth 20 percent of the grade, is an extension of an existing article, where some of the results are duplicated and then extended. An example is provided if a student wants to use it. The second, worth 30 percent of the grade, is more of the same but with no example provided. The third, worth 50 percent of the grade, is a more original paper within the range of topics covered in the course, where data are collected and analyzed using whatever econometric techniques are relevant. This paper can possibly be the beginning of a senior essay.
Macroeconomic forecasting concerns forecasting variables like GDP, components of GDP like consumption, investment, and imports, inflation, the unemployment rate, interest rates, the government deficit, and exchange rates. There are various forecasting methods, some purely statistical time series techniques and some using economic theory. We will consider both. Financial forecasting is more problematic, since changes in asset prices may be roughly unpredictable. We will examine topics like momentum forecasting to see if some asset prices are predictable.
Attendance Class attendance is required, and there will be considerable class participation. Students will be required to present some of the readings in class. Smartphones, tablets, and laptops may not be used in class.
Statistical Software Many students use R, but any software is fine. A package focused on time series econometrics would be ideal, but not necessary. One possibility is the Fair-Parke program: FP Program. Class time will not be taken going over software.
General Remarks The aim of the course is to get students doing original empirical research using econometric tools. It is also to prepare students to read empirical papers in economics and finance.
Readings The main reference for much of the macroeconomics part of the course is Macroeconometric Modeling: 2018, denoted MM below. Most of the readings will be journal articles. The following are some of the readings. More readings will be added later.
January 13, 15, 17, 22: Econometric Methodology and Tools
January 27, 29, February 3, 5: Autoregressive (AR) and
Vector Autoregressive (VAR)
Forecasting; Quasi Ex Ante Forecasting
First paper due Monday, February 10, before class
February 10, 12, 17, 19, 24, 26, March 2, 5:
Structural Macro Modeling; Macro Financial
Second paper due Monday, March 23, before class. (This is after the break)
March 23, 24: Are Asset Price Changes Predictable?
March 30, April 1: Momentum Forecasting
Outline of third paper due Wednesday, April 7, before class
April 6, 7: Back to Macro Forecasting: True Ex Ante Forecasts
April 13, 15, 20, 22: Student presentations of the third paper
Third paper due the last day of final exams, Wednesday, May 6, at 5pm.