TSP Handbook by Sergio L. Schmukler and Bronwyn H. Hall to accompany Econometric Models and Economic Forecasts by Robert S. Pindyck and Daniel L. Rubinfeld Draft of August 1997 Please send comments or suggestions to [email protected] and/or [email protected] Copyright © 1997 by TSP International. All Rights Reserved. CONTENTS CHAPTER 1:......Introduction CHAPTER 2:......Statistical Review: Using the Random Number Generator and Cumulative Distribution Function CHAPTER 3:......The Two-Variable Regression Model CHAPTER 4:......The Multiple Regression Model CHAPTER 5:...... Single Equation Regression Models CHAPTER 6:...... Serial Correlation and Heteroskedasticity CHAPTER 7:...... Instrumental Variables and Model Specification CHAPTER 8:...... Forecasting with a Single-Equation Regression Model CHAPTER 9:...... Single-Equation Estimation: Advanced Topics CHAPTER 10:.... Nonlinear and Maximum-Likelihood Estimation CHAPTER 11:.... Models of Qualitative Choice CHAPTER 12:.... Simultaneous-Equation Estimation CHAPTER 13:.... Introduction to Simulation Models CHAPTER 14:.... Dynamic Behavior of Simulation Models CHAPTER 15:.... Smoothing and Extrapolation of Time Series CHAPTER 16:.... Properties of Stochastic Time Series CHAPTER 17:.... Linear Time-Series Models CHAPTER 18:.... Estimating and Forecasting with Time Series Models CHAPTER 19:.... Applications of Time-Series Models TSP Handbook Chapter 1 CHAPTER 1 Introduction This handbook’s goal is to introduce you, the reader of Pindyck and Rubinfeld, Econometric Models and Economic Forecasts, Fourth Edition1 (hereinafter P&R), to the use of TSP, a popular econometric software package. We assume you are a student enrolled in an econometrics course and have access to a DOS/Windows/OS2/Apple Macintosh personal computer or a Unix workstation that runs TSP. To use this handbook effectively, you should already be familiar with your computer, its operating system, and an editor for plain ASCII (DOS) text. If you use TSP under Windows, you can use the visual interface utility TSP Through the Looking Glass (TLG) to prepare your TSP input, run TSP and look at the results. Although you may use TSP interactively, you will find an editor useful for class assignments and documenting your work. Specific suggestions about how to work with TSP on your computer are made later in this introduction. This handbook is designed to be a self-sufficient introduction to using TSP. It is not necessary to have the TSP User's Guide and Reference Manual if you only want to do the computer exercises in P&R. However you will find them useful when you do your own econometric work, and for supplementary information about the program. 1 Previous editions of the text can also be used, but be aware of some modifications. 1 TSP Handbook Chapter 1 Each chapter of this handbook corresponds to a chapter of P&R. Each chapter briefly discusses the statistical/econometric concepts being introduced, and then describes the new TSP commands used in the chapter. Next, it solves some examples from P&R using TSP. Lastly, it summarizes the set of TSP concepts introduced in the chapter and lists the batch programs generated for the examples. This handbook starts with the most basic TSP commands, and introduces more complex statements as it goes. Explanations of particular commands are not repeated throughout the Handbook, so you may need to refer to earlier chapters to refresh your memory about particular commands. Description of the commands is not exhaustive. If you want to know about the complete set of options for each command, use the TSP User’s Guide or Reference Manual. We believe you will need to see more details at the beginning of this handbook, so the first chapters contain more econometric concepts and examples than later ones. We leave some P&R examples (for which the data sets are available) to the user. Many examples are not illustrated in this handbook simply because the data sets are not provided in P&R’s datadisk. We also add examples not in P&R, to show the full range of TSP commands. The TSP programs used in this handbook and the datadisk are available on the TSP web page: http://www.tspintl.com/examples/pr Note that some of the results illustrated here might differ in small ways from the ones reported in P&R. Slightly different data sets (from the ones used by P&R), or different estimation techniques cause these discrepancies. 2 TSP Handbook Chapter 1 1.1 How to Run TSP How you run TSP on a computer depends on: (1) whether you want to use TSP in batch mode or interactive mode and (2) which computer(s) are available to you. Let's discuss the batch/interactive choice first (examples of these modes of use are given later in this chapter). 1.1.1 Interactive Use of TSP When running TSP interactively: you type a command, TSP interprets it, and displays the output on the screen. The advantage of running interactively is that it is easy to get started, and to change what you are doing based on the results of previous commands. In the DOS/Windows version of TSP, any commands you have previously executed can also be recalled (using the up-arrow or - key) and edited using the usual insert/delete and arrow keys. This feature is not currently available on Macintosh and Unix. The disadvantage of using TSP interactively is that it is harder to reuse your work. For example, it would be difficult to rerun your commands with a revised data set. Although TSP can capture what you do in an interactive session (discussed in Chapter 4 of the User's Guide, and the REVIEW, TERM, OUTPUT entries in the Reference Manual), it is inherently more difficult to use an interactive session as a TSP program in future work, since most sessions will contain all your mistakes along with the final versions of the commands. These considerations mean serious users of the program, and students who need to hand in their programs and output, will eventually want to switch to batch programming. Windows users will find it easiest simply to use TLG, which makes batch TSP programming very easy in the Windows environment. 3 TSP Handbook Chapter 1 1.1.2 Batch use of TSP The term batch means all the commands you wish to execute are submitted in one file to TSP, "in a batch." In this mode, you use an editor to create a file that contains your TSP program, a series of simple commands composed of keywords and variable names. One example follows: FREQ ; SMPL 66 75 ; LOAD CONS YD ; ... series of numbers ...... MSD CONS YD ; LOGC = LOG(CONS) ; LOGY = LOG(YD) ; OLSQ LOGC C LOGY ; END ; Note: Every command in a batch file must end with a semicolon. TSP program files end with the extension "tsp". For example, you could call the program above "simple.tsp". After you start TSP (the procedure is described below), enter your program’s name (in this case, simple.tsp) when it asks for the name of a batch program to run. When TSP finishes running simple.tsp, there will be a new file on the computer called "simple.out" containing the results of the run. You can look at this output file with an editor, and print it. Each time you run simple.tsp a new version of simple.out is generated. So if you want to keep the current version you need to rename simple.out before rerunning simple.tsp. The advantage of batch mode is that you can easily change commands and correct mistakes with your editor or TLG. The 4 TSP Handbook Chapter 1 corrected file can then be submitted to TSP. This process can be repeated as many times as you like. The disadvantage is that if your changes depend on previous results, working in batch mode can take longer (because you have to keep running the whole program, instead of doing it piecemeal). Note: Interactive examples are only shown in Chapters 1 and 2. In the rest of the handbook, we use batch examples only. 1.2 Note on computers The choice to use either batch or interactive mode depends on the problem you are trying to solve and you will likely find uses for both. The exact way you run TSP will also depend on the computer you use. At the present time, the likely choices fall into three main classes. 1.2.1 Personal computers running Windows 3.1, Windows 95, OS/2 or Macintosh OS These operating systems have graphical user interfaces (GUIs). You typically start TSP by clicking on an icon (see the installation memo that came with your program). TSP begins with a display of the program's name. You will be prompted for the name of an input file, and given the option to run interactively: Enter batch file name [or press Enter for interactive]: If you enter a batch file name (like simple.tsp), it will execute and then prompt you either to switch to interactive use, quit TSP, or switch to Windows to examine the output file. If you switch to Windows, TSP remains active, so you can rerun the input file after 5 TSP Handbook Chapter 1 making changes. This is an extremely useful way to develop TSP programs, but it is only available under multi-tasking operating systems. On Windows 3.1 and 95, you can use TLG. Instead of clicking on a TSP icon, you click the TLG icon. TLG opens and you can either edit an existing TSP input file or make a new one (on the drop-down file menu). When you have finished editing, just click on the TSP icon to run it. 1.2.2 Personal computers running MS/DOS MS/DOS has a traditional line-oriented user interfaces where you type a command and it is immediately executed. Typically, you will see a prompt like: C:\TSP44> To start type TSP at this prompt. You will see the following prompt after an introductory screen: Enter batch file name [or press Enter for interactive]: If you enter a batch file name, TSP reads in your batch file and executes it. If you press enter, TSP prints out some information (the address of TSP International, version number and date of TSP, etc.) and then prompts you to enter commands interactively. If you choose batch execution, an output file such as simple.out is automatically created, as described above. 6 TSP Handbook Chapter 1 1.2.3 Workstations running a version of Unix. Although Unix workstations can have GUIs, TSP is usually run in the command shell like a DOS program. Depending on how TSP has been installed on your system, you will type something like "tsp" and receive the same prompts as in the DOS case. WARNING: In all cases, and on all computers, whether the computer can find TSP when you type tsp or TSP, your input file when you type "simple.tsp," and for the data file or your output file (like simple.out) depends crucially on the directory structure, that is, it depends on how files are organized on your computer. It is impossible to guess how this works for every Handbook reader, so we strongly recommend that if you get error messages of the sort "File not found," etc., and you cannot figure out what to do, consult someone knowledgeable at your local installation for assistance. To help TSP locate files, wherever you can supply a filename to TSP, you can also supply the full directory information, as long as you enclose the whole filename in quotes. For example in DOS/Windows, you can use names like “us\patdata\patest.tsp"; in Unix, names like "/us/patdata/patest.tsp" or even "/US/patdata/patest.TSP" (keeping in mind that on Unix there is a difference between upper case and lower case letters in filenames). 1.3 Introduction to Basic TSP commands Now that you know how to start TSP on your computer, what can you do with it? TSP is both a powerful programming language for the advanced user and an easy-to-use regression package for the novice. The Reference Manual has over 100 commands, but you only need a few of these to make effective use of TSP. Here is a brief introduction to some of the most commonly used commands (from 7 TSP Handbook Chapter 1 Chapter 3 onwards, we present the commands in a more structured format): FREQ sets the frequency of the data series. SMPL sets the range of the data series. PRINT prints the data. READ reads the data. GRAPH graphs the data. MSD computes simple statistics for the data INPUT reads an input (tsp) file and executes it. For interactive use only: HELP a help facility. SHOW displays the program variables. The first example in Chapter 1 of P&R consists of 8 observations of data on the grade point average and family income of economics students. To run this example in TSP, you need to read in these data, and graph them with a best fit line as shown in Figure 1.1 of the text. 1.4 Creating an Input File To read in the data, create a simple input file that contains the data and the commands necessary for reading it. You can then input this file to TSP interactively, without having to retype the data every time you run the program. Here is the input file (called ex1.tsp): FREQ N ; SMPL 1 8 ; ? Sample and Frequency are set; read in data. READ Y X ; 8