Econometrics

How to learn Macroeconomic CGE Modeling?

What is CGE Modeling? Computable General Equilibrium (CGE) modeling is a type of economic modeling used to study the impacts of economic policies and shocks on the economy as a whole. The goal of CGE modeling is to provide a comprehensive and consistent representation of the interactions among different sectors and agents within an economy. …

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Endogenous co-regressor… Not what you think!

In classic econometrics textbooks and classes, we often associate endogeneity to the correlation or relationship with the error term from a regressor. This is correct and fully agreed upon across authors and professors. But there’s some kind of new endogenous behavior that may not be correlated with the error/residual only, and it may be a …

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Modeling Asset Prices with Geometric Brownian Motion in Python

One landmark theorem in Financial Economics is the Efficient Market Hypothesis (EMH). This theorem posits that in an arbitrage-free market, we can model an asset’s present price as the discounted expected future price: We can take the natural logarithm to show that the natural logarithm of asset prices follows a random walk – the best …

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Threat to validity of regression analysis – Omitted Variables Bias

Most of the readers of this blog would be familiar with ordinary least squares estimator and regression models. Let us talk about one source that can cause these estimates and models to be biased and inconsistent. This is especially important when we think about the causal relationship of interest or the relationship which being studied. …

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Panel Data Nonlinear Simultaneous Equation Models with Two-Stage Least Squares using Stata

In this article, we will follow Woolridge (2002) procedure to estimate a set of equations with nonlinear functional forms for panel data using the two-stage least squares estimator. It has to be mentioned that this topic is quite uncommon and not used a lot in applied econometrics, this is due that instrumenting the nonlinear terms …

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