Here is a brief outline of the project. We will talk more about this in class:

1. Statement of theory and hypothesis

- What is the hypothesis or hypotheses that you are testing? Be explicit.
- What does theory say about each hypothesis you are interested in testing, i.e. what are the theoretical predictions?

2. Specification of the econometric model

- Specify the econometric model you will estimate. What variables will be in the model? Will you take logs, add squares of variables, or do any other transformations of the data?
- What sign do you expect each coefficient to have, and what is the interpretation of the coefficients?
- Do you expect to have any trouble with the error term such as serial correlation or heteroskedasticity?

3. Obtain data

- What would an ideal data set look like? What data are actually available? Where will you get the data. Be specific about data sources.

4. Estimation of the econometric model and diagnostic tests

- What estimation technique will you use?
- What problems will you test for? If you detect problems, how will you correct for them?

5. Test hypotheses

- What tests will you conduct and what significance level will you use to evaluate the outcome?

6. Forecasting or prediction

- How can you use the model you have estimated to make forecasts or predictions?

It will take longer than you think to do the estimation stage, so give yourself plenty of time. When the project is finished, it may or may not turn out the way you hoped. That's okay, you will not be graded on how clever you are at finding an interesting hypothesis to investigate, or on whether you find out anything particularly noteworthy when you are done, though you might. The goal is for you to illustrate that you know how to use the tools and techniques that we learn in class, and that is the basis for the evaluation of the projects.

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