Introduction to Econometrics - Pearson

1 Introduction to 122/08/18 3:13 PMAbel/Bernanke/CroushoreMacroeconomics* Acemoglu/Laibson/ListEconomics*Bade/Park inFoundations of Economics*Berck/HelfandThe Economics of the EnvironmentBierman/FernandezGame Theory with Economic ApplicationsBlair/RushThe Economics of Managerial Decisions*BlanchardMacroeconomics*BoyerP rinciples of Transportation EconomicsBransonMacroeconomic Theory and PolicyBrucePublic Finance and the American EconomyCarlton/PerloffModern Industrial OrganizationCase/Fair/OsterPrinciples of Economics*ChapmanEnvironmental Economics.

2 Theory, Application, and PolicyDaniels/VanHooseInternational Monetary & Financial EconomicsDownsAn Economic Theory of DemocracyFarnhamEconomics for ManagersFroyenMacroeconomics: Theories and PoliciesFusfeldThe Age of the EconomistGerberInternational Economics*GordonMacroeconomics*GreeneEco nometric AnalysisGregory/StuartRussian and Soviet Economic Performance and StructureHartwick/OlewilerThe Economics of Natural Resource UseHeilbroner/MilbergThe Making of the Economic SocietyHeyne/Boettke/PrychitkoThe Economic Way of ThinkingHubbard/O BrienEconomics*InEconMoney, Banking.

3 And the Financial System*Hubbard/O Brien/RaffertyMacroeconomics*Hughes/Cain American Economic HistoryHusted/MelvinInternational EconomicsJehle/RenyAdvanced Microeconomic TheoryKeat/Young/ErfleManagerial EconomicsKleinMathematical Methods for EconomicsKrugman/Obstfeld/MelitzInternat ional Economics: Theory & Policy*LaidlerThe Demand for MoneyLynnEconomic Development: Theory and Practice for a Divided WorldMillerEconomics Today*Miller/BenjaminThe Economics of Macro IssuesMiller/Benjamin/NorthThe Economics of Public IssuesMishkinThe Economics of Money, Banking, and Financial Markets*The Economics of Money, Banking, and Financial Markets, Business School Edition*Macroeconomics: Policy and Practice*MurrayEconometrics: A Modern IntroductionO Sullivan/Sheffrin/PerezEconomics: Principles, Applications and Tools*ParkinEconomics*PerloffMicroeconom ics*Microeconomics.

4 Theory and Applications with Calculus*Perloff/BranderManagerial Economics and Strategy*Pindyck/RubinfeldMicroeconomics *Riddell/Shackelford/Stamos/SchneiderEco nomics: A Tool for Critically Understanding SocietyRobertsThe Choice: A Fable of Free Trade and ProtectionSchererIndustry Structure, Strategy, and Public PolicySchillerThe Economics of Poverty and DiscriminationShermanMarket RegulationStock/WatsonIntroduction to EconometricsStudenmundUsing Econometrics : A Practical GuideTodaro/SmithEconomic DevelopmentWalters/Walters/Appel/Callaha n/Centanni/Maex/O NeillEconversations: Today s Students Discuss Today s IssuesWilliamsonMacroeconomicsThe Pearson Series in Economics*denotes MyLab Economics titles.

5 Visit to learn 222/08/18 3:13 PMIntroduction to EconometricsJames H. StockHarvard UniversityMark W. WatsonPrinceton UniversityFOURTH EDITIONNew York, 322/08/18 3:13 PMVice President, Business, Economics, and UK Courseware: Donna BattistaDirector of Portfolio Management: Adrienne D AmbrosioSpecialist Portfolio Manager: David AlexanderEditorial Assistant: Nicole NedwidekVice President, Product Marketing: Roxanne McCarleyProduct Marketing Assistant: Marianela SilvestriManager of Field Marketing, Business Publishing: Adam GoldsteinExecutive Field Marketing Manager.

6 Carlie MarvelVice President, Production and Digital Studio, Arts and Business: Etain O DeaDirector, Production and Digital Studio, Business and Economics: Ashley SantoraManaging Producer, Business: Alison KalilContent Producer: Christine DonovanOperations Specialist: Carol MelvilleDesign Lead: Kathryn FootManager, Learning Tools: Brian SuretteSenior Learning Tools Strategist: Emily BibergerManaging Producer, Digital Studio and GLP: James BatemanManaging Producer, Digital Studio: Diane LombardoDigital Studio Producer: Melissa HonigDigital Studio Producer: Alana ColesDigital Content Team Lead: Noel LotzDigital Content Project Lead: Noel LotzProject Manager: Rose Kernan, Cenveo Publisher ServicesInterior Design: Cenveo Publisher ServicesCover Design: Studio MontageCover Art: Courtsey of authorsPrinter/Binder: LSC Communications, Printer: Phoenix Color/Terre HauteAbout the cover: The cover shows a time series plot of 72 indicators of real economic activity in the United States beginning in 1959.

7 The plot shows the growth of these variables since 1959 and their (roughly) synchronized downturns associated with recessions. These series are a subset of the 131-variable dataset used in Chapter 17 to construct dynamic factor model forecasts of future growth in real 2019, 2015, 2011 by Pearson Education, Inc. or its affiliates. All Rights Reserved. Manufactured in the United States of America. This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise.

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9 Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson s products by the owners of such marks, or any relationship between the owner and Pearson Education, Inc., or its affiliates, authors, licensees, or of Congress Cataloging-in-Publication DataNames: Stock, James H., author. | Watson, Mark W., : Introduction to Econometrics / James H. Stock, Harvard University, Mark W. Watson, Princeton University. Description: Fourth edition. | New York, NY : Pearson , [2019] | Series: The Pearson series in economics | Includes bibliographical references and : LCCN 2018035117 | ISBN 9780134461991 Subjects: LCSH: : LCC HB139.

10 S765 2019 | DDC dc23LC record available at : 0-13-446199-1 ISBN-13: 422/08/18 3:13 PMvBrief ContentsPART ONE Introduction and Review Chapter 1 Economic Questions and Data 1 Chapter 2 Review of Probability 13 Chapter 3 Review of Statistics 61 PART TWO Fundamentals of Regression Analysis Chapter 4 Linear Regression with One Regressor 101 Chapter 5 Regression with a Single Regressor: Hypothesis Tests and Confidence Intervals 136 Chapter 6 Linear Regression with Multiple Regressors 169 Chapter 7 Hypothesis Tests and Confidence Intervals in Multiple Regression 205 Chapter 8 Nonlinear Regression Functions 235 Chapter 9 Assessing Studies Based on Multiple Regression 288 PART THREE Further Topics in Regression Analysis Chapter 10 Regression with Panel Data 319 Chapter 11 Regression with a Binary Dependent Variable 350 Chapter 12 Instrumental Variables Regression 385 Chapter 13 Experiments and