1. 1 MADE STATA Introductory manual

2. 2 MADE QUIZ What are the main OLS assumptions? 1.On average right 2.Linear 3.Predicting variables and error term uncorrelated 4.No serial correlation in error term 5.Homoscedasticity + Normality of error term

3. 3 MADE QUIZ Do we know the error term? Do we know the coefficients? How can we know whether all the assumptions are fulfilled 1.On average right => ??? 2.Linearity => ??? 3.X and ε uncorrelated => ??? 4.ε serially uncorrelated => ??? 5.ε homoscedastic => ???

4. 4 MADE Before STATA A little excercise in Excel –we’ll take a data set –compute x’x –compute (x’x)^-1 –compute (x’x)^-1x’ –compute (x’x)^-1x’y… … and guess what will come out in result of all this

5. 5 MADE Matrix algebra in Excel

6. 6 MADE Step 1- see the data

7. 7 MADE Step 2 – get rid of empty cells STATA does that automatically In Excel one needs to do that manually Best way I know is to sort and delete empty … but we do not need to do it, ‘cause I’ve already prepared the spreadsheet (DATA nonempty)

8. 8 MADE Step 3 – transposition and multiplication To transpose: –just copy and paste special, then clicking on the transpose option To multiply: –need to know what comes out –select the „right” area –write =mmult(range1;range2) –to do ranges, you can select them with the mouse –DO NOT press enter: press ctrl+shift+enter

9. 9 MADE Step 4 – matrix inversion To invert a matrix: –need to know what comes out => select this area –type =minvers(range) –DO NOT press enter: press ctrl+shift+enter –… and that’s it

10. 10 MADE Step 5 – just do it yourself Get x’x Get (x’x)^-1 Get (x’x)^-1x’ Get (x’x)^-1x’y

11. 11 MADE STATA as calculator Multiplication and other simple operations –display (7*(6+5)/4)^(-0.3) Statistical calculations –display normal(1.96) Generating variables –generate t=1967 Etc...

12. 12 MADE Getting data to STATA How to get data to STATA? –From Excel [Copy&Paste, remember „commas”] –Manually [if one has the time... ] –From other sources [import function]

13. 13 MADE Reading data in STATA How to know what it is? –describe [read the texts] –summarize [statistical properties] Learning more about your data set –correlate trade gdppc [just to see how it works] –histogram gdppc [graphing is easier from the menu] –scatter trade gddpc [as above ]

14. 14 MADE Regression with STATA How to do regression? –regress gdppc fdi trade inv school2 –regress gdppc fdi trade inv school2, nocons... and that’s it

15. 15 MADE Regression with STATA Only now one should start thinking –Maybe there is something about groups of countries we should look at more in detail? –How about North/South division? –We have a variable for lattitude, right? gen south=0 replace south=1 if lat<0 sum south tab south –bysort south: reg gdppc fdi trade inv school2 We can also draw many of these things –twoway (scatter inv gdppc, mlabel( ccode)), by( south)... and many others

16. 16 MADE Diagnostics with STATA Normality of the residual –predict e, residual [directly after regress] –sktest e [Jarque-Bery test] RESET test (so-called omitted variables or functional form test) –ovtest, rhs

17. 17 MADE Diagnostics with STATA Structural stability [Chow test] –gen d=0 –gen dfdi=0 –gen dtrade=0 –gen dinv=0 –replace d=1 if lat<0 (why so????) –replace dfdi=fdi if lat<0 –replace dtrade=trade if lat<0 –replace dinv=inv if lat<0 –reg gdppc fdi trade inv school2 d dfdi dtrade dinv –test (d=0) (dfdi=0) (dtrade=0) (dinv=0)

18. 18 MADE Diagnostics with STATA Heteroscedasticity –hettest, rhs [Breush-Pagan test] –imtest, white [White test] Autocorrelation (we would need time, not this dataset) –tsset t –dwstat [Durbin-Watson test] –bgodfrey, lags(1 2 3) [Breush-Godfrey test]