Forthcoming in Journal of Economic Surveys, Vol 15. Issue 4, 2001.

Theory and Practice of Econometric Modelling Using PcGive10

Giovanni Urga City University Business School, Department of Investment, Risk Management and Insurance, Frobisher Crescent, Barbican Centre, London EC2Y 8HB (U.K.). Tel. +/44/(0)20/7477 8698, Fax. +/44/(0)20/7477 8885, e-mail: g.urga@city.ac.uk http://www.business.city.ac.uk/irmi/giovanni_urga.html 6 June 2001 Abstract: This review offers a guided tour to PcGive 10 modules for econometrics analysis of time series (PcGive), limited dependent variable (LogitJD) and static and dynamic panel data analyses (DPD), financial econometric (GARCH) and time series (ARFIMA) modelling. Several empirical applications are reported to illustrate the package. Keywords: Econometric Modelling, Econometric Software, GiveWin, PcGive.

1. Introduction Version 10 is the first really new release of PcGive since its launch for Windows. It is written in Ox, though it remains a fully interactive menu-driven program, with the front-end (GiveWin) supporting the various econometric packages. In this review, I will briefly illustrate the new features of GiveWin (Version 2) and PcGive (Version 10) and provide some guidelines to the documentation available. However, the bulk of my presentation focuses on the use of PcGive 10 to implement the numerous econometric techniques now available to undertake sound econometric modelling. 2. GiveWin (Version 2) GiveWin (Version 2), an interactive menu-driven graphics-oriented program, is the front-end to a series of integrated modules, namely PcGive, PcNaive, PcGets, STAMP, TSP, X12Arima, of which Ox Professional (OxDebug, OxRun, OxGauss, OxPack) is the implementation language. GiveWin 2 allows one to load, edit, transform and save data, and create a wide variety of graphs that can be edited, amended and saved/exported in various format. This new version, which operates under Windows 95, 98, ME and NT/2000, has improved graphics capability and quality, providing almost 50 types of graphs, ranging from time-series plots to crossplots, ACF, density, 3-D plots; it also provides a workspace window (left window in

Figure 1) which allows easy navigation between open files and between GiveWin and the various modules. The structure of the menu at the top of the screen (reported in Figure 1) allows data input and output and file handling (file), editing window information (edit), setting fonts, and keeping and reading from graphs (view), data transformation and creation of the various types of graphs (tools), launches modules (modules), selecting the window focus (window) and access to the contents and index of the help system (help). The data can be read from and written to human-readable (ASCII) files and Excel spreadsheet files (various versions up to the latest), as well as GAUSS and Stata data files. The primary mode of data storage is a pair of files with extensions .IN7 and .BN7. The former holds the information contents of the binary file (.BN7) containing the actual data. For instance, in the workplace window in Figure 1 in the Data Files list in bold appears the currently selected file Blu220.IN7 containing data from Banerjee, Lazarova and Urga (2001) that I will use later in this review for illustration of empirical implementations. Graph files can be stored and retrieved and they appear in Graphics files in the workplace windows. We can create various types of graphs, and graph files can be saved in encapsulate PostScript (.EPS), PostScript (.PS), Windows Metafiles (.WMF), enhanced metafiles (.EMF), and GiveWin graphics (.GWG) of which the last can be read by GiveWin for further editing. Text and results outputs are stored and shown in the Results of the Text Files of the workplace window: the text can be edited and used for word processing.

Figure 1: Key Window in GiveWin

The menu command modules in GiveWin allows us to launch the various packages: Figure 2 shows the full list of modules supported by GiveWin. Note that STAMP and TSP are not highlighted, meaning that they are not installed/available in my current version of GiveWin.

Figure 2: Choices from Modules menu in GiveWin The GiveWin manual provides an easy introduction to the interactive programme. Part I provides a brief presentation of the main features of the menu commands and the way to start to work with it. Part II provides very insightful and easy-to-use tutorials on graphics, graph editing (chapters 4, 5 and 12), data input and output (chapters 6 and 13) and transformations (chapter 7). Part III provides a useful presentation of the statistical formulae (chapter 8) utilised throughout the book, data files formats (chapter 9) and the syntax of how certain functions can be accessed via entering commands (chapters 10 and 11)

3. PcGive (Version 10) PcGive, activated from the modules menu option (Figure 2), provides essential tools for modern econometric modelling (PcGive), the implementation of limited dependent variable models (LogitJD), dynamic panel data (DPD), volatility models (Garch) and time series models such as Arfima. Figure 3 illustrates the choices.

Figure 3: Choices from the Package Menu in PcGive

Figure 4: Choices from the Model Menu in Econometric Modelling

If we select the first option in the package menu, econometric modelling provides the list of econometric techniques available from single equation methods to multivariate cointegration, and also some simple cross-section regression as well as more complicated non-linear models as showed in Figure 4. In order to illustrate the various options in the menu reported in Figure 4, suppose that we want to estimate an autoregressive distributed lag model of order one where real money demand for U.K. (m-puk) is a function of income (yuk) and the interest rate (iuk) 1 : (m puk ) t = cons + a1 (m puk ) t 1 + b0 yuk t + b1 yuk t 1 + c1iuk t + c 2 iuk t 1 + t (1)

The sample period runs from 1969:4 up to 1996:4. Figure 5 reports the graphs 2 of the series, scaled by both means and ranges as can be found in the edit/edit graphics objects/regression,scale in GiveWin. Further, using the Descriptive statistics option we can calculate a set of descriptive statistics such as means, standard deviations, correlations, and normality tests for each variable. In addition, we can compute unit-root tests for each variable by appropriately selecting the lag structure of the ADF test with the option of including either only a constant, or trend and constant or seasonals and constant. In our case, we conclude that all variables are I(1), with important implications for a cointegration analysis between money, income and the interest rate.

Figure 5: Time-series plot of m-puk, yuk and iuk.

The PcGive output that we get by running (1) using OLS as the estimation method is 4 :
EQ( 1) Modelling m-puk by OLS (using Blu2606.in7) The estimation sample is: 1970 (3) to 1996 (4) Coefficient 1.02754 -0.483938 0.364748 -0.331300 0.00316221 -0.00258360 Std.Error 0.01481 0.2162 0.1131 0.1123 0.0006299 0.0006128 t-value 69.4 -2.24 3.22 -2.95 5.02 -4.22 t-prob 0.000 0.027 0.002 0.004 0.000 0.000 Part.R^2 0.9797 0.0477 0.0942 0.0801 0.2013 0.1509

m-puk_1 Constant yuk yuk_1 iuk iuk_1

sigma 0.0123577 R^2 0.99361 log-likelihood 318.39 no. of observations 106 mean(m-puk) 9.93215

RSS 0.0152711852 F(5,100) = 3110 [0.000]** DW 1.71 no. of parameters 6 var(m-puk) 0.0225475

The Test menu allows us to evaluate the performance of our model (Figure 6). Graphic analysis provides actual and fitted values, scaled residuals, cross-plot and various other residuals graphs. It is straighforward then to switch (in the test menu) to either Test (it brings up the test dialog) or Test Summary, that provides the battery of mis-specification tests for serial correlation, ARCH residuals, normality of the residual distribution, heteroscedasticity and functional form mis-specification. Note that in the latter case the AR and ARCH default lag length is automatically selected by PcGive on the basis of the data frequency and sample size.

Figure 6: Choices from the Test Menu in Econometric Modelling In our case, the results reported below signal the presence of non normality in the residuals and heteroscedasticity:
AR 1-5 test: ARCH 1-4 test: Normality test: hetero test: hetero-X test: RESET test: F(5,95) F(4,92) Chi^2(2) F(10,89) F(20,79) F(1,99) = = = = = = 2.2462 0.72792 6.8905 1.9382 2.2543 3.3692 [0.0559] [0.5751] [0.0319]* [0.0501] [0.0058]** [0.0694]

In addition, other specification test options such as Exclusion, Linear and General restrictions plus Omitted variables are available. Dynamic analysis allows one to calculate static long-run solutions, to evaluate the lag structure and the roots of the lag polynomials, and test for common factors (COMFAC). Note that in Figure 6 the option Recursive Graphics is not highlighted because we havent selected recursive regression: if implemented, we will have available plots of the coefficients 2 SE , a series of graphs of recursive residuals, and various Chow tests. Further, if we select the last 12 observations for forecasts, the output from the estimation will also contain the following parameter constancy tests:
1-step (ex post) forecast analysis 1994 (1) to 1996 (4) Parameter constancy forecast tests: Forecast Chi^2(12)= 8.4571 [0.7485] Chow F(12,91) = 0.44770 [0.9391]

showing that the model does not present any apparent problem of instability. Using the Forecast option in the Test menu we can investigate further the forecasting properties of our model by switching, for instance, to h>1 step-ahead forecasts or dynamic forecasts with quite rich options in terms of calculations of forecast standard errors and their plots.

Let us turn to another option in Figure 4, and use Multiple-equation Dynamic Modelling containing, under Model Settings, unrestricted systems, cointegrated VARs, simultaneus equations models and constrained simultaneous equations models. In order to test for the presence of multivariate cointegration amongst m-puk, yuk and iuk, the first step is to identify an appropriate unrestricted VAR. The nature of the data set used suggests the choice of a VAR of order four. Once I estimate that system, the evaluation of how well specified it is can be done using the appropriate option in the Test menu, as shown in Figure 6. If we find that the VAR is not mis-specified (using either Test/Test or Test/Test Summary) we can then proceed to test for the presence of cointegration: in this case, we have to select from the test menu Dynamic analysis and cointegration tests and then the option I(1) cointegration analysis. The output that we obtain is the following:
I(1) cointegration analysis, 1970 (3) to 1996 (4) eigenvalue loglik for rank 444.2257 0 0.28452 461.9703 1 0.071026 465.8750 2 0.029754 467.4759 3 H0:rank<= 0 1 2 Trace test pvalue 46.500 [0.000] ** 11.011 [0.214] 3.2017 [0.074]

Asymptotic p-values based on: Unrestricted constant Unrestricted variables: [0] = Constant Number of lags used in the analysis: 4 beta (scaled on diagonal) m-puk 1.0000 0.40365 yuk 0.52271 1.0000 iuk 0.024500 -0.0092219 alpha m-puk yuk iuk

-111.39 -58.985 1.0000

-0.027303 -0.028268 -10.351

0.010941 -0.026346 2.1850

0.00014764 4.4724e-005 0.00092304

long-run matrix, rank 3 m-puk yuk m-puk -0.039332 -0.012039 yuk -0.043885 -0.043760 iuk -9.5721 -3.2802

iuk -0.00062220 -0.00040489 -0.27283

The output provided (eigenvalues, trace test, the (alfa), (beta) and the = ' (long-run matrix) in the Johansen procedure) brings evidence of only one cointegration vector: there is only one eigenvalue significant at the 1% level and this outcome determines that the rank of is unity. Finally, it is worth mentioning that we have not considered in this case the presence of deterministic terms (intercept, trends, other so-called indicator variables, and so on) and their status (restricted or unrestricted) which may affect the system. These are important issues which need to be carefully addressed in order to make correct inference and PcGive provides various options to evaluate their significance and impact. Note that in our money demand example we have found a unique cointegration relationship. If, on the other hand, more than one cointegrated relationship exists, we
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may need help from economic theory to link the cointegrated vectors to the structural relationships. Cointegrated VAR option in Model Settings provides the framework to impose the rank of the cointegration space and cointegration restrictions to uniquely determine the cointegration vectors and a sound economic interpretation. Finally, a series of simultaneous equations models may be implemented, and FIML, 2SLS and 3SLS and equation-by-equation OLS are available. New modules: LogitJD, DPD, Garch, Arfima - There are quite a few new modules attached to this version of PcGive. Following the order in Figure 3, the Limited Dependent Models (LogitJD) option allows one to estimate discrete choice models where the dependent variable only takes on two (integer) values. PcGive implements binary discrete choice, binary logit and probit models, and multivariate discrete choice models, as well as some count data models. The documentation available in Volume III of PcGive is nicely integrated and mainly drawn from Cramer (2001). The output below reports the results from the estimation of the logit binary discrete model choice model as reported in PcGive III manual. There is evidence that variable CAR01, a (0,1) dummy variable for the presence of a car in the household, is influenced by the logarithm of household income per equivalent adult, in Dutch guilders (LINC):
CS( 1) Modelling CAR01 by Logit The estimation sample is 1 - 2820 Coefficient -2.77231 0.347582 Std.Error 0.8283 0.08579 t-value -3.35 4.05 t-prob 0.001 0.000

Constant LINC

log-likelihood -1831.28599 no. of states 2 no. of observations 2820 no. of parameters 2 baseline log-lik -1839.627 Test: Chi^2( 1) 16.681 [0.0000]** AIC 3666.57197 AIC/T 1.30020283 mean(CAR01) 0.641844 var(CAR01) 0.22988 Newton estimation (eps1=0.0001; eps2=0.005): Strong convergence Count 1010 1810 2820 Frequency Probability 0.35816 0.35816 0.64184 0.64184 1.00000 1.00000 loglik -1032. -799.3 -1831.

State 0 State 1 Total

- I am very pleased to see that at last there is an official version of a series of routines originally written in Gauss by Manuel Arellano and Stephen Bond later in the 1980s and which have been heavily used in implementing (static and) dynamic panel data econometrics over the last decade. As such, the Panel Data Models (DPD) in PcGive deals with the standard setup of (balanced and unbalanced in terms of T) a typical panel, i.e. a panel where the number of T observations is relatively short but the number of units N is large. PcGive allows one to implement OLS in levels, between and within group estimators, feasible GLS (and GLS with OLS residuals), maximum likelihood (procedures also available in other package), one-step instrumental

variables Anderson-Hsiao method and one-step (robust) and two-step GMM estimation (note that this procedure was only available in DPD and now in PcGive). The PcGive output DPD(1) below reports the two-step OLS estimates of a simple AR(1) model for LI, defined as the logarithm of current gross investment (the data set is from the tutorial file grunfeld.xls in PcGive). In order to control for fixed effects, the variables are transformed in terms of orthogonal deviations, and a full set of time dummies is enclosed in the regression to account for factors varying over time but common to all units:
DPD( 1) Modelling LI by 1 and 2 step (using grunfeld.xls) ---2-step estimation using DPD ---Coefficient Std.Error t-value t-prob LI(-1) 0.324350 0.05089 6.37 0.000 Constant -0.203228 0.02019 -10.1 0.000 T1938 -0.00254701 0.03257 -0.0782 0.938 T1939 -0.0315257 0.05232 -0.603 0.548 T1940 -0.128736 0.04535 -2.84 0.005 T1941 -0.0708284 0.04308 -1.64 0.102 T1942 0.115091 0.04312 2.67 0.008 T1943 0.103626 0.04438 2.33 0.021 T1944 -0.232467 0.08696 -2.67 0.008 T1945 -0.190685 0.08110 -2.35 0.020 T1946 -0.0201863 0.05512 -0.366 0.715 T1947 0.0757306 0.05466 1.39 0.168 T1948 0.174425 0.04515 3.86 0.000 T1949 0.0626937 0.05539 1.13 0.259 T1950 -0.141672 0.04066 -3.48 0.001 T1951 -0.111055 0.04778 -2.32 0.021 T1952 -0.0220058 0.03391 -0.649 0.517 T1953 0.0997002 0.02790 3.57 0.000 T1954 0.156674 0.03355 4.67 0.000 sigma 0.2389418 R^2 0.3685844 RSS 9.1919988765 no. of observations 180 Using robust standard errors Transformation used: constant: number of individuals longest time series shortest time series Wald (joint): Wald (time): AR(1) test: AR(2) test: Chi^2(1) Chi^2(18) N(0,1) N(0,1) sigma^2 0.05709316

TSS 14.557763196 no. of parameters 19

orthogonal deviations yes time dummies: 10 (derived from year) 18 [1937 - 1954] 18 (balanced panel) = = = = 40.62 644.5 -2.573 -1.861 [0.000] ** [0.000] ** [0.010] * [0.063] 17

No surprisingly, the autoregressive coefficient and the time dummies are highly significant even though do not fully explain the dynamics of the investment series. In addition to other standards statistics, at the bottom of the output above, two Wald tests (to test for the joint significance of all coefficients and time dummies, respectively) and two AR tests (to test the null of no serial correlation of first- and second-order, respectively) are reported. What is missing in this new implementation of Panel Data Models is the set of procedures recently proposed in the literature dealing with so-called square-panels, that is panels in which the number of T observations is sufficiently large (with N

remaining large but not so large as in the typical panel) such that the time-series properties of the data may be exploitable. This involves the implementation of both panel data unit roots and cointegration testing procedures. Banerjee (1999) provides a useful overview.

- The Volatility models (Garch) package allows one to implement a variety of models in the ARCH and GARCH family. First, we formulate the conditional mean of the process of the variable under consideration (asset returns, for example) and then we specify in the Model Settings the ARCH/GARCH structure of the residuals. To illustrate the estimation of a GARCH(1,1), we use the series of returns (rt = 100 * log( pt / pt 1 )) of the Argentinean stock index MERVAL ( pt ) (including 28 stocks) from Bellini and Urga (2001). The series runs from 8-Nov-1995 to 8-Nov2000, containing 1306 observations, it is plot in Figure 7.

Figure 7: Time-series plot of the Argentinean stock index MERVAL.

Suppose that we estimate the following model:

rt = 0,t + 1,t r1,t 1 + y t , y t = t t , t ~ N (0,1) ,

(2) (3)

with the specification of volatility, t2 , taking the GARCH(1,1) form

t2 = 0 + 1 y t2 + 1 t21

(4)

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The PcGive output that we get in running (2)-(4) using maximum likelihood estimation method and having imposed stationarity, 1 + 1 < 1 and i + i 0 , as reported in the model setting in Figure 8, is:
VOL( 1) Modelling DLMERVAL by restricted GARCH(1,1) (Indexes.xls) The estimation sample is: 3 to 1306 Coefficient DLMERVAL_1 Constant alpha_0 alpha_1 beta_1 Y X H H H 0.0862839 0.000873219 2.33064e-005 0.143517 0.808357 Std.Error robust-SE t-value t-prob 2.73 1.90 3.06 3.04 16.5 0.006 0.058 0.002 0.002 0.000

0.03177 0.03161 0.0004675 0.0004605 5.362e-006 7.605e-006 0.02287 0.04726 0.02704 0.04894

log-likelihood 3327.22784 mean(h_t) 0.000464443 no. of observations 1304 AIC.T -6644.45568 mean(DLMERVAL) 4.36431e-005 alpha(1)+beta(1) 0.951874

HMSE 4.83515 var(h_t) 2.4781e-007 no. of parameters 5 AIC -5.09544147 var(DLMERVAL) 0.000458338 alpha_i+beta_i>=0, alpha(1)+beta(1)<1

Initial terms of alpha(L)/[1-beta(L)]: 0.14352 0.11601 0.093780 0.075808 0.040043 0.032369 0.026165 0.021151

0.061280 0.017098

0.049536 0.013821

Used sample mean of squared residuals to start recursion Robust-SE based on analytical Information matrix and analytical OPG matrix BFGS using analytical derivatives (eps1=0.0001; eps2=0.005): Strong convergence Used starting values: 0.058186 3.9899e-005 2.2839e-005 0.80631 0.14369

and from the Test/Test Summary menu

Descriptive statistics for scaled residuals: Normality test: Chi^2(2) = 197.99 [0.0000]** ARCH 1-2 test: F(2,1295)= 0.75083 [0.4722] Portmanteau(36): Chi^2(35)= 42.394 [0.1823]

There is evidence of strong statistical significance of the GARCH(1,1) process. Note also that the significance of the autoregressive parameter indicates that this market is predictable and, therefore, does not satisfy the criteria for weak efficiency (i.e. securities prices do not follow patterns which repeat and is not possible to trade on the basis of historical price information). However, the non-normality of the residuals suggest that these results are not conclusive.

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Figure 8: Choices from the Model Setting Menu in Volatility Models

We can evaluate a GARCH(1,1) model (also recursively if the option recursive is selected in the Estimate menu) using the extremely rich number of features provided in Test menu. In equation Vol(1) (and Vol(2) below) I report some mispecification tests. Further, it is also possible to compare the results from GARCH(1,1) to those obtained from an EGARCH model or a model where we relax the assumption of a normal distribution: we may choose between a t-distributed error structure and a generalised error distribution. It is also possible to implement asymmetric and threshold GARCH, and finally select and test the significance of a conditional variance in mean (GARCH-M) with the variance entering in various way depending on the nature of the conditioning and the data. When we choose to enter h_t in mean (Figure 8) in the conditional mean, the result of our application is
VOL( 2) Modelling DLMERVAL by restricted GARCHM(1,1) (Indexes.xls) The estimation sample is: 3 to 1306 Coefficient 0.0871627 0.000309457 2.38152e-005 0.144507 0.806041 1.81092 Std.Error 0.03136 0.0008185 6.020e-006 0.02086 0.02766 13.04 robust-SE 0.03016 0.0008472 9.131e-006 0.03927 0.04726 12.44 t-value t-prob 2.89 0.004 0.365 0.715 2.61 0.009 3.68 0.000 17.1 0.000 0.146 0.884

DLMERVAL_1 Constant alpha_0 alpha_1 beta_1 h_t

Y X H H H X

log-likelihood 3327.59219 mean(h_t) 0.00046351 no. of observations 1304 AIC.T -6643.18438 mean(DLMERVAL) 4.36431e-005 alpha(1)+beta(1) 0.950548

HMSE 4.83256 var(h_t) 2.46011e-007 no. of parameters 6 AIC -5.09446655 var(DLMERVAL) 0.000458338 alpha_i+beta_i>=0, alpha(1)+beta(1)<1

Initial terms of alpha(L)/[1-beta(L)]: 0.14451 0.11648 0.093887 0.039631 0.031944 0.025748

0.075676 0.020754

0.060998 0.016729

0.049167 0.013484

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Used sample mean of squared residuals to start recursion Robust-SE based on numerical Hessian matrix and numerical OPG matrix BFGS using numerical derivatives (eps1=0.0001; eps2=0.005): Strong convergence Used starting values: 0.058186 3.9899e-005 2.2839e-005 0.80631 0.14369 0.00000 Descriptive statistics for scaled residuals: Normality test: Chi^2(2) = 198.10 [0.0000]** ARCH 1-2 test: F(2,1294)= 0.64929 [0.5226] Portmanteau(36): Chi^2(35)= 44.249 [0.1359]

showing insignificance of the conditional variance in the mean equation. The GARCH parameter restrictions option allows one to evaluate the stationarity/non stationarity of the process as well as the non-negativity assumptions on the relevant parameters. - The Time Series Models package deals with the fractionally-integrated autoregressive-moving average model ARFIMA (p,d,q). The empirical implementation involves identification, estimation and testing of the process. A crucial step is the identification of the order of differencing, d. The value of d determines whether the process is stationary (-0.5<d<0.5) or non-stationary; whether the process is stationary with long memory (0<d<0.5) or non-stationary with longmemory (d>0.5) with d=1 the special case of a unit-root. The ARFIMA model allows one to estimate d as a real and not just as an integer using both maximum likelihood and non-linear least squares. Likelihood ratio and Wald tests are implemented to test the various hypotheses. The package allows one to estimate d or fix it, and to treat the mean of the process in various ways. The output below reports the application of a simple ARFIMA model to the MARVAL returns series, where the fractional parameter is estimated and with no treatment of mean:
---- Maximum likelihood estimation of ARFIMA(0,d,0) model ---The estimation sample is: 3 - 1306 The dependent variable is: DLMERVAL (Indexes.xls) Coefficient 0.0333269 5.75939e-005 Std.Error 0.02249 0.0007420 t-value 1.48 0.0776 t-prob 0.139 0.938

d parameter Constant

log-likelihood 3163.36222 no. of observations 1304 AIC.T -6320.72444 mean(DLMERVAL) 4.36431e-005 sigma 0.02139

no. of parameters 3 AIC -4.84718132 var(DLMERVAL) 0.000458338 sigma^2 0.00045753

BFGS using numerical derivatives (eps1=0.0001; eps2=0.005): Strong convergence Used starting values: 0.0 4.3643e-005

We conclude that the process is short-memory stationary.

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Finally, a few words about the vast documentation available. The documentation of PcGive is contained in three volumes. Volume I and II comprise univariate and multivariate dynamic econometric modelling, Volume III covers various other useful econometric topics and techniques. In particular, Volume I introduces econometric methods and various empirical implementations for cross-section regression (chapter 3), descriptive statistics (chapter 4) single-equation dynamic modelling (chapters 5-8), and nonlinear modelling (chapter 9). Part II of the book, which comprises chapters 10-15, presents the econometrics of PcGive. Volume II contains tutorial material for more advanced econometric modelling such as multiple-equation dynamic modelling comprising VAR and cointegration (chapters 3-6, 8), and simultaneous equations analysis (chapter 7). Chapters 9-14 complement the tutorials of the previous chapters with a sound presentation in a texbook format of the various topics. My students find the last part of the volume in which the statistical output of the multiple equation models is reviewed extremely useful. Volume III describes volatility models (ARCH and GARCH and their variants; chapters 2, 3, 4), limited dependent variable models (chapters 5 and 6, plus the Cramer (2001) volume), dynamic panel data models (chapter 7-10), time series ARFIMA models (chapters 1113) and X12ARIMA for seasonal adjustment (chapters 14-16). I have been using the beta version of PcGive10 since October 2000 for my Advanced Financial Econometrics (AFE) and Advanced Financial Modelling and Forecasting (AFMF) lectures for the MSc.in Mathematical Trading and Finance course at City University Business School in London and for my undergraduate lectures in Econometrics at the Department of Economics of Bergamo University in Italy. Both samples of students found the program easy to use and the material very useful and easy to follow: the set up of the three volumes combines quite nicely useful tutorial chapters, examples and the introduction of the econometric methods and econometric methodology.
4. Suggestions for Future Developments

As with most good things, the more you get the more you want. Thus, I look forward to some further developments, mostly unavailable in other rival packages either: (a) first, a better handling of data series at high frequency to identify the dates when one views and graphs daily series. (b) It will be useful to have GMM as an estimation method and (c) the state-space models and Kalman filter, even though they are available in companion packages of the OxMetrics family such as TSP/STAMP. (d) I would also like to see implemented (in the Descriptive Statistics menu), principal components analysis, used in finance to test for instance Arbitrage Pricing Theory (Roll and Ross, 1980, just to mention a seminal paper) and in econometrics to test for common stochastic trends/cointegration between series (Harris, 1997; Snell, 1999, and Hall et al., 1999). (e) Panel data unit roots and cointegration testing procedures will be welcomed by many practitioners in the light of the important developments of the topic in the last few years, with profound implication for micro- macroeconometric developments: at the moment there exists a few number of Gauss routines not always available from authors. (f) There is not a general consensus yet on the appropriate procedures to test for the presence of structural breaks/changes, but

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this is a topic that cannot remain at the margin of empirical implementations (Bai and Perron, 1998; Hansen and Johansen, 1999; Hansen, 2000; Banerjee, Lee and Urga, 2001). It is evident that most of those suggestions cannot be implemented yet given that they are unsettled research topics. Thus, it may be easy to implement (a)-(d) in PcGive given the capability of the Ox programming system, but some experimentation for (e) and (f) should first go in an Ox package, and then later, when settled down, in PcGive. This same route was taken with the Arfima and Panel data modules.
5. Conclusions

In conclusion, PcGive 10 represents a significant step forward in the practice of econometrics. GiveWin has improved in terms of graphics capability and quality, data handling and its communication with the various modules. In PcGive, the already existing modules are better structured (for instance the separation between single equation and multiple equation estimations has finally vanished) and easier to implement. In addition, this version contains limited dependent variable models and dynamic panel data, volatility models and time series models such as Arfima, mostly unavailable in rival packages. PcGive 10, as earlier versions, has a unique feature that other econometric packages do not have. It embodies the practice of econometric modelling, theoretically elaborated over the last twenty years or so by David Hendry and his co-authors. It provides a proper approach for modelling economic data and model selection procedures, also available by the end of June 2001 in PcGets, an automatic general-tospecific econometric model selection program, which represents one of the new challenges in econometric modelling (Hendry, 2001).
6. Availability and Pricing

PcGive was released early in May 2001. The single user copy of 1 in a group consisting of packages (PcGive, Ox and STAMP) plus one set of books and 1 CD costs 250 for academic and 500 for others. Other combinations for multi-users (academic and non) plus special introductory offer to the end of August 2001 are available from the distributor. The software is distributed by Timberlake Consultants Limited, Unit B3, Broomsleight Business Park, Worsley Bridge Road, London SE26 5BN (U.K.). Tel.+/44/(0)20/86973377, Fax.+/44/(0)20/86973388, e-mail:info@timberlake.co.uk. Web Sites: http://www.timberlake.co.uk and http://www.timberlake-consultancy.com.

Acknowledgements

I wish to thank Jurgen Doornik, David Hendry, Stepana Lazarova, and Colin Roberts for their helpful comments and suggestions on an earlier draft of this review. The usual disclaimer applies. Financial support from the UK Economic and Social Research Council (Project N. R 000 23 8145) is gratefully acknowledged.

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Endnotes
1. Real money demand is expressed as a seasonaly adjusted M0 aggregate, income is measured as GDP (1990 prices) and the interest rate is defined as the three-month Treasury bond rate. For more details on the data set see Banerjee, Lazarova and Urga (2001). In this review, the graphs are done as screen captures from PcGive: one can see they are in a window. In general, to get good quality one can cut and paste or, even better, use postscript files. In addition, one can set the Graphics in GiveWin to black&white before copying (Graphic Display Mode in Edit menu): this is useful when printing is not colour, and one wishes to avoid gray scales in the Word output for instance. The Model Settings option in the model menu allows us to switch to an alternative estimation method, while the option Estimate allows us to select also some period for ex-post forecast and the possible implementation of recursive estimation. In this paper all PcGive outputs are in a (fixed) Courier New font with size 9.

2.

3.

4.

References

Bellini, F. and Urga,G. 2001. Testing for Predictability and Integration in the Latin American Countries. MTF W.P. 09-01, City University Business School, London. Bai, J. and Perron,P. 1998. Estimating and Testing Linear Models with Multiple Structural Changes. Econometrica 66: 47-78. Banerjee, A. 1999. Panel Data Unit Roots and Cointegration: An Overview. Oxford Bulletin of Economics and Statistics 61: 607-629. Banerjee, A., Lazarova, S. and Urga,G. 2001. Bootstrapping sequential tests for multiple structural breaks. City University Business School, revised version of the European University Institute Working Papers N. 98/24. Banerjee, A., Lee, S. and Urga,G. 2001. Detecting Structural Breaks in Time Series: a Monte Carlo Comparison. Mimeo, IRMI, City University Business School. Cramer, J.S. 2001. The LOGIT Model: An Introduction for Economists, 2nd Edition. London: Timberlake Consultants Press. Doornik, J.A. and Hendry, D.F. 2001. GiveWin. An Interface to Empirical Modelling. London: Timberlake Consultants Press. Doornik, J.A. and Hendry, D.F. 2001. Empirical Econometric Modelling using PcGive. Volume I. London: Timberlake Consultants Press. Doornik, J.A. and Hendry, D.F. 2001. Modelling Dynamic Systems using PcGive. Volume II. London: Timberlake Consultants Press. Doornik, J.A. and Hendry, D.F. 2001. Econometric Modelling using PcGive. Volume III. London: Timberlake Consultants Press.
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Hall, S., Lazarova, S. and Urga, G. 1999. A Principal Components Analysis of Common Stochastic Trends in Heterogenous Panel Data: Some Monte Carlo Evidence. Oxford Bulletin of Economics and Statistics 61: 749-767. Hansen, B. E. 2000. Testing for Structural Change in Conditional Models. Journal of Econometrics 97: 93-115. Hansen, H. and Johansen, S. 1999. Some Tests for Parameter Constancy in Cointegrated VAR-Models. Econometrics Journal 2: 306-333. Harris, D. 1997. Principal Components Analysis in Cointegrated Time Series. Econometric Theory 13: 529-557. Hendry, D.F. 2001. Achievements and Challenges in Econometric Methodology. Journal of Econometrics 100: 7-10. Roll, R. and Ross, S. A. 1980. An Empirical Investigation of the Arbitrage Pricing Theory. Journal of Finance 35: 1073-1109. Snell, A. 1999. Testing for r versus r-1 Cointegrating Vectors. Journal of Econometrics 88: 151-191.

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