Most economics departments require second or third year undergraduate students to complete an

econometrics project and write a paper on their findings. Years later I remember how stressful my
project was, so I've decided to write the guide to econometrics term papers that I wish I had when I
was a student. I hope that this will prevent you from spending many long nights in front of a
computer.
For my econometrics project, I'm going to see if Okun's law holds in America. (If
you're class requires you to do a multivariate regression, please see "How to
Do a Painless Multivariate Econometrics Project") First we'll need to learn
something about Okun's law. The articleInstant Econometrics Project - Okun's
Law gives us the information we need; you'll need to read through that before
we continue. From reading that we see that we want to see how close our data
matches:
Yt = 1 - 0.4 Xt
Where:
Yt is the change in the unemployment rate in percentage points.
Xt is the percentage growth rate in real output, as measured by real GNP.
So we will be estimating the model:
Yt = b1 + b2 Xt
Where:
Yt is the change in the unemployment rate in percentage points.
Xt is the change in the percentage growth rate in real output, as measured by real GNP.
b1 and b2 are the parameters we are trying to estimate.
To be able to estimate our parameters, we'll need data. The page Quarterly
Economic Datahas all the information you need. The easiest thing to do is
probably save each of the files individually, following the instructions on the
bottom of the screen. Save them in a folder such as "My Documents". Once
you've done that, open Excel and load dataquar.xls from the folder you saved it
in. If you've done it correctly, you should see something that looks like this.
Now that you've downloaded the data and opened Excel, we can go onto the next section. In the
next section we find the data we need.

We've got the data file open we can start to look for what we need. First we
need to locate our Y variable. Recall that Yt is the change in the unemployment
rate in percentage points. The change in the unemployment rate in percentage
points is in the column labeled UNRATE(chg) which is Column I. By looking at
column A, we see that our quarterly unemployment rate change data runs from
April 1948 to October 2002 in cells G24-G242. You should write these facts
down as you'll need them later.
Now we need to find our X variables. In our model we only have one X variable,
which is Xtis the change in the percentage growth rate in real output, as
measured by real GNP. We see that this variable is in the column marked
GNPC96(%chg) which is in Column E. This data runs from April 1947 to October
2002 in cells E20-E242. Again you should write this down.
We've identified the data we need. We can now compute the regression
coefficients using Excel. If you are not restricted to using a particular program
for your regression analysis, I'd recommend using Excel. Excel is missing a lot
of the features a lot of the more sophisticated econometrics packages use, but
for doing a simple linear regression it is a useful tool. You're much more likely
to use Excel when you enter the "real world" than you are to use an
econometrics package, so being proficient in Excel is a useful skill to have.
Our Yt data is in cells G24-G242 and our Xt data is in cells E20-E242. When
doing a linear regression we need to have an associated X entry for every
Yt entry and vice-versa. The Xt's in cells E20-E23 do not have an associated
Yt entry so we will not use them. We will use the Ytdata in cells G24-G242 and
our Xt data in cells E24-E242. Now that we have located the data we need, we
can calculate our regression coefficients (our b1 and b2). Before continuing you
should save your work under a different filename (I chose myproj.xls) so if we
need to start over we have our original data.
Now that you've downloaded the data and opened Excel, we can go onto the
next section. In the next section we calculate our regression coefficients.

Now onto the data analysis. Go to the Tools menu on the top of the screen.
Then find Data Analysis in the Tools menu. If Data Analysis is not there,
then you'll have to install it. To install the Data Analysis Toolpack see these
instructions. You cannot do regression analysis without the data analysis
toolpack installed.
Once you've selected Data Analysis from the Tools menu you'll see a menu
of choices such as "Covariance" and "F-Test Two-Sample for Variances". On that
menu select Regression. The items are in alphabetical order, so they
shouldn't be too hard to find. Once there, you'll see a form that looks like this.
Now we need to fill this form in.
The first field we'll need to fill in is the Input Y Range. This is our
unemployment rate data in cells G24-G242. You can choose these cells by
typing "$G$24:$G$242" into the little white box next to Input Y Range or by
clicking on the icon next to that white box then selecting those cells with your
mouse.
The second field we'll need to fill in is the Input X Range. This is our % change
in GDP data in cells E24-E242. You can choose these cells by typing
"$E$24:$E$242" into the little white box next toInput X Range or by clicking
on the icon next to that white box then selecting those cells with your mouse.
Lastly we'll have to name the page our regression results will go on. Make sure
you have New Worksheet Ply selected, and in the white field beside it type in
a name like "Regression". Now we're done, and your form should like this.
When that's completed, click on OK.
You should now see a tab on the bottom of your screen called Regression (or
whatever you named it) and some regression results. Your regression results
should look like this. I've x'ed out the actual results (you'll have to do your own
work!), but if you've got the intercept coefficient between 0 and 1, and the x
variable coefficient between 0 and -1, you've probably done it correctly. Now
you've got all the results you need for analysis, including R Square,
coefficients, standard errors, etc.
We were looking to estimate our intercept coefficient b1 and our X coefficient
b2. Our intercept coefficient b1 is located in the row named Intercept and in
the column namedCoefficient. On my sheet it has the value "AAA" and the
associated standard error "CCC" (see here). Our slope coefficient b2 is located
in the row named X Variable 1 and in the column named Coefficient. On my
sheet it has the value "BBB" and the associated standard error "DDD". Make
sure you jot these figures down (or print them out) as you will need them for
analysis.
Now you've got the regression results you need, you'll need to analyze them for
your term paper. You can see how to do so in the follow-up article: Hypothesis
Testing Using One-Sample t-Tests.