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SHORT COURSE – BIG DATA ECONOMETRICS (ERMAS 2014 , August 18-20)

Teacher: Otilia Boldea

Associate Professor, Department of Econometrics and OR & CentER, Tilburg University, The Netherlands

E-mail: ermas2014course@gmail.com

Web: https://sites.google.com/site/otiliaboldea or http://www.tilburguniversity.edu/webwijs/show/?uid=o.boldea

GOAL:

With data sets becoming larger, there is an increasing need to master new statistical and econometric
methods that predict variables while achieving dimension reduction and/or trading model complexity with
model fit. The goal of this course is to give an applied, hands-on introduction to these methods, using large
datasets from economics, and the free software R. The code and the class slides will be made available on
my webpage.

Lecture 1: Regression, Model Selection and Model Averaging (Monday 18 August, 9-11.30)

This lecture will start with an introduction to regression modeling. I will discuss the challenges of picking
among different models, and classical model selection via AIC (Akaike Information Criterion) and BIC
(Bayesian Information Criterion). I will then discuss the pitfalls of these classical methods in the presence of
large datasets, and introduce new information criteria such as FIC (Focused Information Criterion). Finally,
we will discuss techniques that predict the variables of interest not by selecting models, but by averaging
across models. Illustration will be via a simulated dataset.

Lecture 2: Penalized Regression Models (Tuesday 19 August, 9-10.15)

Penalized regression is just gaining popularity in economics and business. In the second lecture, you will
learn these methods, or more specifically, how to do regression in the presence of a large number of
potential explanatory variables (predictors). In particular, you will learn how to set some of the coefficients of
these predictors to zero (LASSO methods) or shrink them to zero (Shrinkage methods). Illustration will be
done via a large economic dataset.

Lecture 3: Dynamic Factor Models (Wednesday 20 August, 9-10.15)

In the last lecture, you will learn principal component analysis and factor models, dimension reduction
methods that are routinely used today in central banks. I will show how to extract common factors from a
large number of predictors, and to use them to predict a dynamic variable over time. Illustration will be done
via a large macroeconomic dataset for US.

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READING LIST (TENTATIVE, to be updated):

Trevor Hastie, Robert Tibshirani and Jerome Friedman (2009). The Elements of Statistical Learning: Data
Mining, Inference and Prediction. Springer: New York. Chapters 3, 7. Free of charge at
http://statweb.stanford.edu/~tibs/ElemStatLearn/ (HTF)

James H. Stock and Mark Watson (2011). Dynamic Factor Models, in Oxford Handbook of Forecasting,
Michael P. Clements and David F. Hendry (eds), Oxford: Oxford University Press. (working paper version:
http://www.princeton.edu/~mwatson/papers/dfm_oup_4.pdf) (SW)

Lecture 1: HTF Chapters 3.1-3.3, 7.1-7.8

Lecture 2: HTF Chapters 3.4-3.9

Lecture 3: HTF, Chapters 3.5 + SW.

SOFTWARE:

I will use R, which is available and free of charge at: http://cran.r-project.org/

COURSE HOMEPAGE:

https://sites.google.com/site/otiliaboldea (in progress)

REGISTRATION: DEADLINE JUNE 30, 2014

Registration is free and open only to faculty, PhD students, and advanced Master students. There are 60
seats available, on a first come, first served basis. To register, fill in the table below and email it to
ermas2014course@gmail.com. You will get an email within 10 days confirming your registration.

Name
University
Position
Research Area

ERMAS 2014 CONFERENCE:

If you wish to attend, see http://conferinta.econacademia.net

2 or http://www.econ.ubbcluj.ro/ermas2014