Coursework AQRM – EFIM20010


School of Economics
Unit: EFIM20010, Applied Quantitative Research Methods
Assessment’s Contribution to Unit: 50%
Release Date: 29 April 2022
Submission Date: 13 May 2022, 11am

Students are strongly advised to submit their work ahead of the deadline. Should you have a problem with submission
to Blackboard you should email econ-ug@bristol.ac.uk for guidance immediately.

• Your answer should not exceed 1400 words for Question 1 and 1400 words for Question 2 (2800 words in total).
Exceeding this word-limit will incur a penalty. You should include an accurate word count on the front cover of
the assignment. Details relating to penalties are at the end of this document.
• Assignments handed in after the deadline, without a pre-arranged extension, will be subject to late penalties.
Details relating to penalties are at the end of this document.
• A reference list/bibliography is recommended. This list does not contribute to the word count. Information on
referencing can be found via our library. You should not cite the lectures in the references, nor the data provided
for the project.
• Please use Arial or Calibri font at 12-point.
• Your assignment should be combined into a single document and submitted in pdf format with a document
name containing your student number.
• You may include photographs or scans of your own hand-drawn, labelled diagrams or calculations. We would
advise you to generate your own diagrams but if you include diagrams or pictures that you have not produced
yourself, or are modified versions of existing images, you should ensure you reference them appropriately.
Figures and tables should normally be included inline in the text.
• Your answer will be assessed using the University Marking Criteria.

This is a piece of COURSEWORK that contributes to your Unit mark and you can:
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Coursework AQRM – EFIM20010


Coursework Question 1:

A researcher is interested in whether politically-motivated hiring and firing of civil servants affects the
quality of the educational system. Her argument is that, in many settings, politicians have the discretion
to hire and fire education personnel (e.g., teachers and headmasters). She is interested in whether,
following an election, a change in the ruling political party affects whether teachers are replaced, with
potential subsequent effects on pupils’ grades. She has data on a country with two dominant political
parties (i.e., we can ignore all potential other political parties), and estimates the following
specification:

= 1 + 2 + 3 +
where
is the outcome of interest (see below)
is equal to 1 if school is located in a district where the ruling political party changes at
the election and 0 otherwise
denotes the average age of students in school
is the error term

She estimates two regressions, each with a different outcome of interest:
1. The percentage of teachers that is replaced in school immediately after an election:
2. The natural log of the average exam result of pupils in school : ln⁡()

The researcher starts by estimating this specification by OLS. The results are reported in column 1
(using the percentage of teachers that is replaced as the dependent variable) and column 2 (using the
natural log of schools’ average exam results) of Table 1 below:

Table 1: OLS estimates of a change in the ruling political party on the percentage of teachers that is
replaced (column 1) and on the natural log of schools’ average test scores (column 2)

Dependent variable:
(1)
Percent of
teachers replaced
(2)
ln(Average schools’
exam results)
8.41 -0.065
(2.37) (0.034)
Number of schools 4,182 4,182
Note: Robust standard errors given in parentheses.

a) What is the interpretation of the coefficient of interest 2 in the OLS regression of column (1)
and column (2)?
(8 marks)

Coursework AQRM – EFIM20010


b) Explain why we cannot interpret the estimate in column (2) as a causal effect, giving examples
to describe the problem and show your understanding. Based on (one of) your example(s), what
do you expect the direction of the bias to be?
(10 marks)

c) To estimate the causal effect of a change in the political party on students’ average test scores,
the researcher exploits the fact that a change in the political party occurs when the vote share
of the new party (denoted by ) exceeds that of the incumbent (); i.e. when
> . She uses a regression discontinuity design to estimate the following
regression:
= 1 + 2ℎ + 3 + () + ,

where
ℎ is a dummy equal to 1 if (
> ) in school ’s district, and 0
otherwise (note that this is in fact the same as the variable above, but now
described in terms of vote shares)
is defined as (
− )
is the error term

with ⁡and defined above. Is this a sharp or fuzzy regression discontinuity design? Explain
your answer.
(6 marks)

d) Explain the intuition behind this regression discontinuity design. Also discuss the assumptions
necessary to estimate the causal effect of political party turnover on average students’ exam
results (i.e., using students’ test scores as the outcome of interest). Are the assumptions likely
to hold?
(11 marks)

e) Another researcher is interested in the effect of replacing teachers in schools on student
achievement (i.e., not the effect of a change in the ruling political party). He argues that
regressing student test scores on a dummy variable equal to 1 if the school changed at least
one of their teachers and 0 otherwise would not allow them to estimate a causal effect, since
the dummy is endogenous. Suggest an alternative way to estimate the effect of interest using
a regression discontinuity design. Write out your equation(s) and mention briefly how this can
be estimated. Finally, discuss the validity of this approach.
(15 marks)


TOTAL MARKS QUESTION 1: 50 marks

Coursework AQRM – EFIM20010


Coursework Question 2:

A key tenet of modern macroeconomic theory is that the actions taken by policy makers can have real
effects on the economy. Two researchers want to determine how output and inflation behave in the
wake of monetary policy actions. More precisely, they wish to identify the effects of policy shocks not
directly dictated by current economic conditions, such as the effect of the Central Bank changing its
objectives or beliefs about how the economy works, the effect of political interference, and so on. They
estimate the following models using US monthly data from January 1970 to December 1996:

∆ = 0 + 11 +⋯+ 1111 + 1∆−1 +⋯+ 36∆−36 + ⁡⁡⁡⁡⁡⁡⁡(1)

∆ = 0 + 11 +⋯+ 1111 + 1∆−1 +⋯+ 36∆−36 + ⁡⁡⁡⁡⁡(1)

Where:
is the logarithm of the non-seasonally-adjusted industrial production index (multiplied by 100)
is the logarithm of the non-seasonally-adjusted production price index (multiplied by 100)
is the actual value of the Fed Funds rate at time t
are 11 monthly dummy variables
, are the error terms

Note: The Fed Funds rate is the main instrument of monetary policy in the US. It is the interest rate at
which banks are borrowing Central Bank reserves from each other in the short-term. The Federal
Reserve Open Market (FOMC) committee decides on the appropriate path of the Fed Funds rate in
light of its goals for inflation and output. Although the Federal Reserve influences the Fed Funds rate
by manipulating the supply of reserves available to banks, its actual level is determined as the
equilibrium between the demand and supply of funds in the Fed Funds market.

a) Explain the rationale for including monthly dummy variables.
(3 marks)

b) Discuss why they include 11 monthly dummy variables.
(3 marks)

c) Why are the first differences of the Fed Funds rate, the production price index and the industrial
production index used in the regression instead of their level? Explain your answer.
(6 marks)

d) Figure 1 represents the estimated cumulative dynamic multipliers (solid line) from model 1a) and
1b) and their 95% confidence interval (dashed lines). Summarize and interpret the main results in
Figure 1.
Coursework AQRM – EFIM20010



Figure 1: Effect of a 1% increase in the Fed Funds rate () on the change in output () and inflation ()
(10 marks)

e) The researchers suspect that using the change in the Fed Funds rate as a measure of the policy
shock may lead to biased estimates of model (1): the change in the Fed Funds rate is potentially
endogenous because i) the FOMC decisions are not the only sources of change in the Fed Funds
rate, and ii) the decisions of the FOMC are informed by the Fed’s internal forecasts of current and
future output growth and inflation prepared in advance of each meeting.

State clearly the conditions that need to be satisfied for the estimates of model (1) to identify the
causal effects of the Fed’s actions on output and inflation. Explain why the results obtained in Figure
1 are unlikely to identify the causal effects of monetary policy if the two objections raised above
are valid.
(10 marks)

f) To eliminate the source of bias identified in the previous question, the researchers use information
released by the Federal Reserve around the FOMC meeting to construct a new series of monetary
shocks. This new policy shock series captures the FOMC’s intended change in the Fed Funds rate
that is not due to changes in the Fed’s forecasts of output growth and inflation. They denote this
new series . They then estimate model (1) again but substitute for the change in the Fed Funds
rate:

∆ = 0 + 11 +⋯+ 1111 + 1−1 +⋯+ 36−36 + ⁡⁡⁡⁡⁡⁡⁡(3)

∆ = 0 + 11 +⋯+ 1111 + 1−1 +⋯+ 36−36 + ⁡⁡⁡⁡⁡⁡⁡(3)


Explain why this specification is more likely to identify the effect of monetary policy shocks and
discuss any potential source of bias remaining.
(8 marks)
Coursework AQRM – EFIM20010


g) Compare the results obtained using the new shock series (shown in Figure 2) to those obtained
using the change in the Fed Funds rate (Figure 1). Do these results suggest that the results obtained
by estimating model (1) are potentially biased?

Figure 2: Effect of a 1% positive monetary shock () on the change in output () and inflation ()
(10 marks)



TOTAL MARKS QUESTION 2: 50 marks




Coursework AQRM – EFIM20010



Penalties for late work
Assignments handed in after the deadline, without a pre-arranged extension will be subject to the following penalty:
• A fixed absolute penalty of 10 marks is applied for each day work is submitted after the agreed submission
deadline. Please note, weekend days count towards the calculation of late penalties, bank holidays and
University closure days do not.
• A mark of zero is applied to work submitted five or more days after the agreed deadline if this threshold is not
already reached.
Penalties for work over the maximum word count

You are expected to include a word-count on the first page of the assignment. Footnotes should be avoided.
• Direct quotations will count towards the word-count
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If you are found to have put an inaccurate word-count on your submission, a penalty of 5 marks may be imposed, over
and above the penalties below:

Assessment exceeds word limit by up to (percentage of
maximum)
Penalty deducted from intellectual mark
5% 5 marks
10% 10 marks
15% 15 marks
20% 20 marks
25% 25 marks
More than 25% Mark of zero applied

For example, for a 2,000 word assignment, if a student handed in a piece of work consisting of 2,050 words, your mark
would be reduced by 5 marks. This is because the piece of work is between 0% and 5% over the maximum limit.
Plagiarism
In academic writing, plagiarism is the inclusion of any idea or any language from someone else without giving due credit
by citing and referencing that source in your work. This applies if the source is print or electronic, published or
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The University's Examination Regulations state that “Any thesis, dissertation, essay, or other course work must be the
student’s own work and must not contain plagiarised material. Any instance of plagiarism in such coursework will be
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The Examination Regulations give information on the University's procedures for dealing with cases of plagiarism in
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More information about plagiarism, and how to avoid it is available from the Library website.


Referencing

If you reference papers in your answers, you should reference them using a consistent referencing system, such as the
Harvard referencing system; you should normally cite sources in the text. As a general rule, you should avoid using
footnotes to reference.
• If you include a quote, it should be in quotation marks, and a page number included in the in-text reference.
• Whilst you should normally avoid larger quotes, if you include them, you should also indent the text.
If you cite a paper in your essay, you should also include a full reference to the paper in the reference list at the end of
the paper.
• Do not list papers in your reference list that you have not referenced in the paper
Coursework AQRM – EFIM20010


University marking criteria
Fail (<40) 3rd (40-49) 2.2 (50-59) 2.1 (60-69) 1st (70+)
Attainment of Learning
Outcomes
Attainment of only a
minority of the learning
outcomes.
Limited attainment of
intended learning
outcomes
Some limitations in
attainment of learning
objectives but has managed
to grasp most of them.
Attained all the intended
learning outcomes for a
unit.
Excellent range and depth
of attainment of intended
learning outcomes.
Application of Methods Able to demonstrate a clear
but limited use of some of
the basic methods and
techniques taught.
Able to use a proportion of
the basic methods and
techniques taught.
Able to use most of the
methods and techniques
taught.
Able to use well a range of
methods and techniques to
come to conclusions.
Mastery of a wide range of
methods and techniques
Analysis, Comprehension
and Synthesis
Weak and incomplete grasp
of what has been taught.
Evidence of study and
comprehension of what has
been taught, but grasp
insecure.
Evidence of study and
comprehension of what has
been taught
Evidence of study,
comprehension, and
synthesis beyond the
bounds of what has been
explicitly taught.
Evidence of study and
originality, combined with
evaluation and synthesis of
material clearly beyond the
bounds of what has been
taught.
Technical Mastery For technical material,
students may be able to
apply a limited number of
basic concepts, with
significant errors
For technical material,
students will be able to
apply basic concepts, but
there may be some
substantial errors
For technical material,
students will be able to
apply most standard
concepts, but with some
errors or major omissions.
For technical material,
students will be able to
apply most standard
concepts, and some
advanced concepts but
there may be some errors
or minor omissions
For technical material,
students will be able to
apply all standard concepts,
and select appropriate
advanced concepts; errors
will normally be few and
minor in impact
Evaluation/Critical Analysis Deficient understanding of
the issues and concepts
underlying the techniques
and material taught.
Some grasp of the issues
and concepts underlying
the techniques and
material taught, but weak
and incomplete
Some grasp of issues and
concepts underlying the
techniques and material
taught
Able to employ critical
analysis and judgement of
the techniques and
material taught
Able to display a command
of critical analysis and
judgement of the
techniques and material
taught
Quality of presentation Poor presentation Poor presentation Adequate presentation Very good presentation Excellent presentation

Note: Because the marking criteria consider a number of dimensions, it is unlikely that a single piece of work fits nicely into all of the descriptions above. For example, a piece of work
may have excellent presentation, but due to significant errors, and major deficiencies, the piece of work may still be awarded a fail mark.