Carnegie Mellon University

Heinz College

94-834 Applied Econometrics I

Course Syllabus
Fall Semester 2018

INSTRUCTOR

Edson Severnini, Assistant Professor of Economics and Public Policy

Office: 2212 Hamburg Hall (HBH)
Office Hours: Tuesdays 9:30-10:50am and by appointment
E-Mail: edsons@andrew.cmu.edu
Phone: 412-268-2329

COURSE ORGANIZATION

Class meets for lecture and discussion each Monday and Wednesday, August 27 through
October 15. Classes are scheduled 3:00 – 4:20pm at HBH 1005. Recitations are
scheduled for Fridays 1:30 – 2:50pm at HBH 1005.

Teaching assistants will hold regular office hours, conduct recitations, and assist in
grading assignments and exams. TAs will also be available for appointments at your
mutual convenience. We will announce office hours and locations during the first week
of class.

TAs:
David Adler (dadler@andrew.cmu.edu), Head TA
Brenda Mittelbuscher (bmittelb@andrew.cmu.edu)

PREREQUISITE

You are presumed to have a solid grounding in basic statistics, at the level of 90-711
(Empirical Methods for Public Policy and Management), 90-786 (Intermediate Empirical
Methods) or 95-796 (Statistics for IT Managers). We will make good use of the material
covered in those courses.

READINGS

There is a set of readings from Mastering Metrics: The Path from Cause to Effect by
Joshua D. Angrist and Jorn-Steffen Pischke (Princeton University Press, 2015). This is a
relatively simple but sophisticated book. It is fun to read and is also very short (and
inexpensive!). If you like the style of the book we suggest you follow up with a more

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advanced book by the same authors, Mostly Harmless Econometrics (Princeton
University Press, 2009).

We will also be assigning papers from the academic literature for you to read. Some of
these are listed below. Other papers may be added as the course progresses. You will
be kept up to date on the Course Canvas web page.

You will likely find it useful to have a basic statistics textbook at hand. The book you
used in your preparatory statistics class (90-711, 90-786, 95-796, or similar course) will
be fine. In addition, many of you may find it helpful to have a standard econometrics
textbook available to provide additional material on the topics we are covering. One
good choice is Introduction to Econometrics by James H. Stock and Mark W. Watson
(Pearson). You can buy a used version of the 1st or 2nd edition, which should be quite
inexpensive at this point.

COURSE CONTENT AND OBJECTIVES

Econometrics has an important place in the data sciences. As your textbook authors
say, the purpose of econometrics is to “untangle cause and effect in human affairs.”
Econometrics is essential for advancing understanding in the social sciences, conducting
public policy evaluation, and assessing the impact of business practice.

Applied Econometrics I is the first course in a two-course sequence designed to teach

the essentials of econometric methodology. You should plan to take both courses.

During the first course you will:

• Learn why random assignment is so useful for the purpose of sorting out cause
and effect.
• Develop a clear understanding of bivariate and multiple regression, and come to
appreciate the value and limitations of regression methods.
• Acquire an appreciation for the use of instrumental variables for the purpose of
evaluating causality in complex real-world applications.

Applied Econometrics II follows up by pursuing those same topics in additional depth,

and by treating other topics and applications. For instance, in that course you will:

• Learn how regression discontinuity is used to draw inferences about causal

effects from rules constraining human behavior.
• Use difference-in-differences techniques to study causality when experiments
happen naturally in society.
• Apply event study analysis and synthetic control methods to tackle causal
questions when there are multiple natural experiments, or small sample sizes.

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Both Applied Econometrics I and Applied Econometrics II are “hands on” courses in
which you will not only learn to read and interpret existing studies, but will also conduct
econometric analyses of your own. The goal is to help you take your first few steps
toward becoming a “Metrics Master”! One of those steps is becoming competent and
confident in the use of Stata to conduct empirical analyses.

GRADING AND ACADEMIC INTEGRITY

Your grade depends on the extent to which you demonstrate the capacity to solve
problems and think critically about econometric practice.

There will be five graded problem sets. You are encouraged to work in groups on the
problem sets (and to visit TAs in groups). While the problems may be worked on in
groups, you should hand in paper copies of the answers written in your own words.
Problem sets are due at the beginning of the recitation on September 7, 14, 28, and
October 5, 12. Only assignments that are submitted on time will be graded. However,
as an accommodation, the lowest assignment grade will be dropped when calculating
your final grade.

The final grade is based on two exams (30 percent for the first exam, 38 percent for the
final exam), and problem sets (32 percent).

Class attendance at all lectures and recitations is expected. Please let your instructor
know in advance if you are unable to attend.

Exams are scheduled for September 21 (recitation time) and October 15. Students may
be excused from exams only if arrangements are made in advance or in the event of an
emergency.

A grade of 0 will be assigned for any assignment or exam that does not conform to
University policies regarding academic integrity, and other penalties may also pertain,
including termination from enrollment at Carnegie Mellon. See the Heinz College
Student Handbook.

CLASS POLICY ON LAPTOPS

Please do not use laptops, cell phones, or other electronic communication devices
during class. For those of you who like to have typed material, we will provide all
lecture slides on Canvas.

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THOUGHTS FOR THE SEMESTER

Your graduate-school experience might prove to be mostly enjoyable and carefree, but
it is likely to entail stress as well. The University Provost provides the following
thoughts for students. They seem very sensible to us:

Take care of yourself. Do your best to maintain a healthy lifestyle this semester by
eating well, exercising, avoiding drugs and alcohol, getting enough sleep and taking
some time to relax. This will help you achieve your goals and cope with stress.

All of us benefit from support during times of struggle. You are not alone. There are
many helpful resources available on campus and an important part of the college
experience is learning how to ask for help. Asking for support sooner rather than later is
often helpful.

If you or anyone you know experiences any academic stress, difficult life events, or
feelings like anxiety or depression, we strongly encourage you to seek support.
Counseling and Psychological Services is here to help: call 412-268-2922 and visit their
website at http://www.cmu.edu/counseling/. Consider reaching out to a friend, faculty
or family member you trust for help getting connected to the support that can help.

TENTATIVE COURSE OUTLINE AND SCHEDULE

You should read the textbook carefully, and may find the following papers useful.

Topic 1. The Potential Outcomes Framework and Randomized Trials (3 lectures: August
27 – September 5)

Core Ideas

• Angrist and Pischke, Introduction, Chapter 1, and Appendix to Chapter 1.1

Applications

• Robert H. Brook, et al., 1983, “Does Free Care Improve Adults’ Health? Results
from a Randomized Controlled Trial,” New England Journal of Medicine, 309(23),
1426-1434.

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You may want to supplement the Appendix to Chapter 1 with corresponding material in your
basic statistics textbook. Also, I will be discussing some material from Stock and Watson.

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 • Aviva Aron-Dine, Liran Einav, and Amy Finkelstein, 2013, “The RAND Health
Insurance Experiment, Three Decades Later,” Journal of Economic Perspectives,
27, 197-222.

• Katherine Baicker, et al., 2013, “The Oregon Experiment – Effects of Medicaid on

Clinical Outcomes,” New England Journal of Medicine, 368(18): 1713-1722.

• Bertrand, M. and Mullainathan, S., 2004, “Are Emily and Greg more Employable
than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination,”
American Economic Review, 94(4), 991-1013.

Topic 2. Regression Analysis (5 lectures: September 10 – 26)

Core Ideas

• Angrist and Pischke, Chapter 2 and Appendix to Chapter 2.2

Applications

• Dale, S. and Krueger, A., 2002, “Estimating the Payoff to Attending a More
Selective College: An Application of Selection on Observables and
Unobservables,” Quarterly Journal of Economics, 1491-1527.

• Ashenfelter, O., 2008, “Predicting the Quality and Prices of Bordeaux Wine,”
Economic Journal, 118(529).

• Ferraro, P. J., Miranda, J. J. and Price, M. K., 2011, “The Persistence of Treatment
Effects with Norm-Based Policy Instruments: Evidence from a Randomized
Environmental Policy Experiment,” American Economic Review, 101(3), 318-322.

• Neal, D. A. and Johnson, W. R., 1996, “The Role of Premarket Factors in Black-
White Wage Differences,” Journal of Political Economy, 104(5), 869-895.

Topic 3. Instrumental Variables (4 lectures: October 1 – 10)

Core Ideas

• Angrist and Pischke, Chapter 3 and Appendix to Chapter 3.3

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Again, you may find it helpful to supplement material from the Appendix with the treatment in
a basic statistics textbook.

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Applications

• Angrist, J.D., and Lavy, V. 1999. “Using Maimonides Rule to Estimate the Effect of
Class Size on Scholastic Achievement,” Quarterly Journal of Economics, 114(2):
533-575.

• Angrist, J.D., 2006, “Instrumental Variables Methods in Experimental Crimino-

logical Research: What, Why and How,” Journal of Experimental Criminology,
2(1), 23-44.

• Angrist, J.D., Lavy, V. and Schlosser, A., 2010. “Multiple experiments for the
causal link between the quantity and quality of children,” Journal of Labor
Economics, 28(4): 773-824.

• Angrist, J.D., Dynarski, S.M., Kane, T.J., Pathak, P.A. and Walters, C.R., 2010,
“Inputs and Impacts in Charter Schools: KIPP Lynn,” American Economic Review,
100(2), 239-243.

• Angrist, J.D., Dynarski, S.M., Kane, T.J., Pathak, P.A. and Walters, C.R., 2012.
“Who Benefits from KIPP?” Journal of Policy Analysis and Management, 31(4),
837-860.

• Bennedsen, Morten, Kasper Meisner Nielsen, Francisco Perez-Gonzalez, and

Daniel Wolfenzon. 2007. “Inside the Family Firm: The Role of Families in
Succession Decisions and Performance,” Quarterly Journal of Economics, 122(2):
647-691.

• Black, Dan, Seth Sanders, Evan Taylor and Lowell Taylor, 2015. “The Impact of
the Great Migration on Mortality of African Americans: Evidence from the Deep
South,” American Economic Review, 105(2): 477-503.

• Brunello, Giorgio, Daniele Fabbri and Margherita Fort. 2013. “The Causal Effect
of Education on Body Mass: Evidence from Europe,” Journal of Labor Economics,
31(1): 195-223.

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In addition, there are many good econometrics textbooks that treat instrumental variables
thoroughly, including the book mentioned above by Stock and Watson.