Gretl Guide

Gretl User’s Guide
Gnu Regression, Econometrics and Time-series Library
Allin Cottrell
Department of Economics
Wake Forest University
Riccardo “Jack” Lucchetti

Dipartimento di Economia
Università Politecnica delle Marche
August, 2022
Permission is granted to copy, distribute and/or modify this document under the terms of the
GNU Free Documentation License, Version 1.1 or any later version published by the Free Software
Foundation (see http://www.gnu.org/licenses/fdl.html).
Contents
1 Introduction 1
1.1 Features at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Installing the programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
I Running the program 3
2 Getting started 4
2.1 Let’s run a regression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Estimation output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 The main window menus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Keyboard shortcuts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 The gretl toolbar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3 Modes of working 12
3.1 Command scripts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Saving script objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 The gretl console . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 The Session concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4 Data files 18
4.1 Data file formats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Databases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Creating a dataset from scratch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4 Structuring a dataset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.5 Panel data specifics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.6 Missing data values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.7 Maximum size of data sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.8 Data file collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.9 Assembling data from multiple sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5 Sub-sampling a dataset 31
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.2 Setting the sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 Restricting the sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
i
Contents ii
5.4 Panel data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.5 Resampling and bootstrapping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6 Graphs and plots 36

6.1 Gnuplot graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.2 Plotting graphs from scripts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 Boxplots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7 Joining data sources 48

7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Basic syntax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.3 Filtering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.4 Matching with keys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.5 Aggregation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.6 String-valued key variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.7 Importing multiple series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.8 A real-world case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.9 The representation of dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.10 Time-series data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.11 Special handling of time columns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.12 Panel data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.13 Memo: join options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8 Realtime data 66
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.2 Atomic format for realtime data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.3 More on time-related options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.4 Getting a certain data vintage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.5 Getting the n-th release for each observation period . . . . . . . . . . . . . . . . . . . . . 69
8.6 Getting the values at a fixed lag after the observation period . . . . . . . . . . . . . . . . 70
8.7 Getting the revision history for an observation . . . . . . . . . . . . . . . . . . . . . . . . 71
9 Temporal disaggregation 74
9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.2 Notation and design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.3 Overview of data handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.4 Extrapolation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.5 Function signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.6 Handling of deterministic terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.7 Some technical details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.8 The plot option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Contents iii
9.9 Multiple low-frequency series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

9.10 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10 Special functions in genr 82

10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.2 Cumulative densities and p-values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.3 Retrieving internal variables (dollar accessors) . . . . . . . . . . . . . . . . . . . . . . . . . 84
11 Gretl data types 85

11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.2 Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.3 Scalars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.4 Matrices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.5 Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.6 Strings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.7 Bundles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.8 Arrays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.9 The life cycle of gretl objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
12 Discrete variables 97
12.1 Declaring variables as discrete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.2 Commands for discrete variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
13 Loop constructs 102

13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
13.2 Loop control variants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
13.3 Special controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
13.4 Progressive mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
13.5 Loop examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
14 User-defined functions 109

14.1 Defining a function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
14.2 Calling a function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
14.3 Deleting a function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
14.4 Function programming details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
14.5 Function packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
15 Named lists and strings 121

15.1 Named lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
15.2 Named strings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
16 String-valued series 130

Contents iv
16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

16.2 Creating a string-valued series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
16.3 Permitted operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
16.4 String-valued series and functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
16.5 Other import formats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
17 Matrix manipulation 138

17.1 Creating matrices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
17.2 Empty matrices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
17.3 Selecting submatrices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
17.4 Deleting rows or columns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
17.5 Matrix operators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
17.6 Matrix–scalar operators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
17.7 Matrix functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
17.8 Matrix accessors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
17.9 Namespace issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
17.10 Creating a data series from a matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
17.11 Matrices and lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
17.12 Deleting a matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
17.13 Printing a matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
17.14 Example: OLS using matrices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
18 Complex matrices 155

18.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
18.2 Creating a complex matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
18.3 Indexation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
18.4 Operators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
18.5 Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
18.6 File input/output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
18.7 Backward (in)compatibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
19 Calendar dates 162

19.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
19.2 Calendrical functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
19.3 Working with pre-Gregorian dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
19.4 Year numbering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
20 Handling mixed-frequency data 167

20.1 Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
20.2 The notion of a “MIDAS list” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
20.3 High-frequency lag lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Contents v
20.4 High-frequency first differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

20.5 MIDAS-related plots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
20.6 Alternative MIDAS data methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
21 Cheat sheet 178

21.1 Dataset handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
21.2 Creating/modifying variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
21.3 Neat tricks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
II Econometric methods 194
22 Robust covariance matrix estimation 195

22.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
22.2 Cross-sectional data and the HCCME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
22.3 Time series data and HAC covariance matrices . . . . . . . . . . . . . . . . . . . . . . . . 197
22.4 Special issues with panel data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
22.5 The cluster-robust estimator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
23 Panel data 204

23.1 Estimation of panel models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
23.2 Autoregressive panel models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
24 Dynamic panel models 214

24.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
24.2 Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
24.3 Replication of DPD results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
24.4 Cross-country growth example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
24.5 Auxiliary test statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
24.6 Post-estimation available statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
24.7 Memo: dpanel options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
25 Nonlinear least squares 229

25.1 Introduction and examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
25.2 Initializing the parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
25.3 NLS dialog window . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
25.4 Analytical and numerical derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
25.5 Advanced use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
25.6 Controlling termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
25.7 Details on the code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
25.8 Numerical accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
Contents vi
26 Maximum likelihood estimation 235

26.1 Generic ML estimation with gretl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
26.2 Syntax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
26.3 Covariance matrix and standard errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
26.4 Gamma estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
26.5 Stochastic frontier cost function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
26.6 GARCH models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
26.7 Analytical derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
26.8 Debugging ML scripts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
26.9 Using functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
26.10 Advanced use of mle: functions, analytical derivatives, algorithm choice . . . . . . . . 248
26.11 Estimating constrained models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
26.12 Handling non-convergence gracefully . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
27 GMM estimation 256

27.1 Introduction and terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
27.2 GMM as Method of Moments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
27.3 OLS as GMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
27.4 TSLS as GMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
27.5 Covariance matrix options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
27.6 A real example: the Consumption Based Asset Pricing Model . . . . . . . . . . . . . . . . 263
27.7 Caveats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
28 Model selection criteria 268

28.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
28.2 Information criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
29 Degrees of freedom correction 270

29.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
29.2 Back to basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
29.3 Application to OLS regression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
29.4 Beyond OLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
29.5 Consistency and awkward cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
29.6 What gretl does . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
30 Time series filters 276

30.1 Fractional differencing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
30.2 The Hodrick–Prescott filter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
30.3 The Baxter and King filter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
30.4 The Butterworth filter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
30.5 The discrete Fourier transform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
Contents vii
31 Univariate time series models 282

31.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
31.2 ARIMA models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
31.3 Unit root tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
31.4 Cointegration test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
31.5 ARCH and GARCH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
32 Vector Autoregressions 296

32.1 Notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
32.2 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
32.3 Structural VARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
32.4 Residual-based diagnostic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
33 Cointegration and Vector Error Correction Models 305

33.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
33.2 Vector Error Correction Models as representation of a cointegrated system . . . . . . . 306
33.3 Interpretation of the deterministic components . . . . . . . . . . . . . . . . . . . . . . . . 307
33.4 The Johansen cointegration tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
33.5 Identification of the cointegration vectors . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
33.6 Over-identifying restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312
33.7 Numerical solution methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
34 Multivariate models 322

34.1 The system command . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
34.2 Equation systems within functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
34.3 Restriction and estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
34.4 System accessors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
35 Forecasting 329
35.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
35.2 Saving and inspecting fitted values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
35.3 The fcast command . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
35.4 Univariate forecast evaluation statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
35.5 Forecasts based on VAR models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
35.6 Forecasting from simultaneous systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
36 State Space Modeling 336

36.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
36.2 Notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
36.3 Defining the model as a bundle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
36.4 Special features of state-space bundles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Contents viii
36.5 The kfilter function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

36.6 The ksmooth function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
36.7 The kdsmooth function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
36.8 Extensions and refinements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
36.9 The ksimul function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
36.10 Numerical optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
36.11 Example scripts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
36.12 Graphical interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
37 Numerical methods 358

37.1 Derivative-based optimization methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
37.2 Derivative-free optimization methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
37.3 Numerical differentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
37.4 Numerical integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
38 Discrete and censored dependent variables 371

38.1 Logit and probit models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
38.2 Ordered response models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
38.3 Multinomial logit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
38.4 Bivariate probit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
38.5 Panel estimators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
38.6 The Tobit model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
38.7 Interval regression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
38.8 Sample selection model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
38.9 Count data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
38.10 Duration models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385
39 Quantile regression 393

39.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
39.2 Basic syntax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
39.3 Confidence intervals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394
39.4 Multiple quantiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394
39.5 Large datasets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
40 Nonparametric methods 398

40.1 Locally weighted regression (loess) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
40.2 The Nadaraya–Watson estimator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400
41 MIDAS models 403

41.1 Parsimonious parameterizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
41.2 Estimating MIDAS models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404
Contents ix
41.3 Parameterization functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410
III Technical details 414
42 Gretl and ODBC 415

42.1 ODBC support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
42.2 ODBC base concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
42.3 Syntax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416
42.4 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
42.5 Connectivity details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
43 Gretl and TEX 421

43.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
43.2 TEX-related menu items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
43.3 Fine-tuning typeset output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
43.4 Installing and learning TEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
44 Gretl and R 427

44.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
44.2 Starting an interactive R session . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
44.3 Running an R script . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
44.4 Taking stuff back and forth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
44.5 Interacting with R from the command line . . . . . . . . . . . . . . . . . . . . . . . . . . . 434
44.6 Performance issues with R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
44.7 Further use of the R library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
45 Gretl and Ox 438

45.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
45.2 Ox support in gretl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
45.3 Illustration: replication of DPD model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
46 Gretl and Octave 442

46.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
46.2 Octave support in gretl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
46.3 Illustration: spectral methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
47 Gretl and Stata 446
48 Gretl and Python 448

48.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
48.2 Python support in gretl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
48.3 Illustration: linear regression with multicollinearity . . . . . . . . . . . . . . . . . . . . . 448
Contents x
49 Gretl and Julia 450

49.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
49.2 Julia support in gretl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
49.3 Illustration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
50 Troubleshooting gretl 452

50.1 Bug reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
50.2 Auxiliary programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
51 The command line interface 454
IV Appendices 455
A Data file details 456

A.1 Basic native format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
A.2 Binary data file format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
A.3 Native database format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457
B Building gretl 458

B.1 Installing the prerequisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458
B.2 Getting the source: release or git . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
B.3 Configure the source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
B.4 Build and install . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
C Numerical accuracy 463
D Related free software 464
E Listing of URLs 465
Bibliography 466
Chapter 1
Introduction
1.1 Features at a glance

Gretl is an econometrics package, including a shared library, a command-line client program and a
graphical user interface.
User-friendly Gretl offers an intuitive user interface; it is very easy to get up and running with
econometric analysis. Thanks to its association with the econometrics textbooks by Ramu
Ramanathan, Jeffrey Wooldridge, and James Stock and Mark Watson, the package offers many
practice data files and command scripts. These are well annotated and accessible. Two other
useful resources for gretl users are the available documentation and the gretl-users mailing
list.
Flexible You can choose your preferred point on the spectrum from interactive point-and-click to
complex scripting, and can easily combine these approaches.
Cross-platform Gretl’s “home” platform is Linux but it is also available for MS Windows and Mac
OS X, and should work on any unix-like system that has the appropriate basic libraries (see
Appendix B).
Open source The full source code for gretl is available to anyone who wants to critique it, patch it,
or extend it. See Appendix B.
Sophisticated Gretl offers a full range of least-squares based estimators, either for single equations
and for systems, including vector autoregressions and vector error correction models. Sev-
eral specific maximum likelihood estimators (e.g. probit, ARIMA, GARCH) are also provided
natively; more advanced estimation methods can be implemented by the user via generic
maximum likelihood or nonlinear GMM.
Extensible Users can enhance gretl by writing their own functions and procedures in gretl’s script-
ing language, which includes a wide range of matrix functions.
Accurate Gretl has been thoroughly tested on several benchmarks, among which the NIST refer-
ence datasets. See Appendix C.
Internet ready Gretl can fetch materials such databases, collections of textbook datafiles and add-
on packages over the internet.
International Gretl will produce its output in English, French, Italian, Spanish, Polish, Portuguese,
German, Basque, Turkish, Russian, Albanian or Greek depending on your computer’s native
language setting.
1.2 Acknowledgements
The gretl code base originally derived from the program ESL (“Econometrics Software Library”),
written by Professor Ramu Ramanathan of the University of California, San Diego. We are much in
debt to Professor Ramanathan for making this code available under the GNU General Public Licence
and for helping to steer gretl’s early development.
1
Chapter 1. Introduction 2
We are also grateful to the authors of several econometrics textbooks for permission to package for
gretl various datasets associated with their texts. This list currently includes William Greene, au-
thor of Econometric Analysis; Jeffrey Wooldridge (Introductory Econometrics: A Modern Approach);
James Stock and Mark Watson (Introduction to Econometrics); Damodar Gujarati (Basic Economet-
rics); Russell Davidson and James MacKinnon (Econometric Theory and Methods); and Marno Ver-
beek (A Guide to Modern Econometrics).
GARCH estimation in gretl is based on code deposited in the archive of the Journal of Applied
Econometrics by Professors Fiorentini, Calzolari and Panattoni, and the code to generate p-values
for Dickey–Fuller tests is due to James MacKinnon. In each case we are grateful to the authors for
permission to use their work.
With regard to the internationalization of gretl, thanks go to Ignacio Díaz-Emparanza (Spanish),
Michel Robitaille and Florent Bresson (French), Cristian Rigamonti (Italian), Tadeusz Kufel and Pawel
Kufel (Polish), Markus Hahn and Sven Schreiber (German), Hélio Guilherme and Henrique Andrade
(Portuguese), Susan Orbe (Basque), Talha Yalta (Turkish) and Alexander Gedranovich (Russian).
Gretl has benefitted greatly from the work of numerous developers of free, open-source software:
for specifics please see Appendix B. Our thanks are due to Richard Stallman of the Free Software
Foundation, for his support of free software in general and for agreeing to “adopt” gretl as a GNU
program in particular.
Many users of gretl have submitted useful suggestions and bug reports. In this connection par-
ticular thanks are due to Ignacio Díaz-Emparanza, Tadeusz Kufel, Pawel Kufel, Alan Isaac, Cri
Rigamonti, Sven Schreiber, Talha Yalta, Andreas Rosenblad, and Dirk Eddelbuettel, who maintains
the gretl package for Debian GNU/Linux.
1.3 Installing the programs

Linux
On the Linux1 platform you have the choice of compiling the gretl code yourself or making use of a
pre-built package. Building gretl from the source is necessary if you want to access the development
version or customize gretl to your needs, but this takes quite a few skills; most users will want to
go for a pre-built package.
Some Linux distributions feature gretl as part of their standard offering: Debian, Ubuntu and Fe-
dora, for example. If this is the case, all you need to do is install gretl through your package
manager of choice. In addition the gretl webpage at http://gretl.sourceforge.net offers a
“generic” package in rpm format for modern Linux systems.
If you prefer to compile your own (or are using a unix system for which pre-built packages are not
available), instructions on building gretl can be found in Appendix B.
MS Windows
The MS Windows version comes as a self-extracting executable. Installation is just a matter of
downloading gretl_install.exe and running this program. You will be prompted for a location
to install the package.
Mac OS X
The Mac version comes as a gzipped disk image. Installation is a matter of downloading the image
file, opening it in the Finder, and dragging Gretl.app to the Applications folder. However, when
installing for the first time two prerequisite packages must be put in place first; details are given
on the gretl website.
1 In this manual we use “Linux” as shorthand to refer to the GNU/Linux operating system. What is said herein about
Linux mostly applies to other unix-type systems too, though some local modifications may be needed.
Part I
Running the program
3
Chapter 2
Getting started
2.1 Let’s run a regression

This introduction is mostly angled towards the graphical client program; please see Chapter 51
below and the Gretl Command Reference for details on the command-line program, gretlcli.
You can supply the name of a data file to open as an argument to gretl, but for the moment let’s
not do that: just fire up the program.1 You should see a main window (which will hold information
on the data set but which is at first blank) and various menus, some of them disabled at first.
What can you do at this point? You can browse the supplied data files (or databases), open a data
file, create a new data file, read the help items, or open a command script. For now let’s browse the
supplied data files. Under the File menu choose “Open data, Sample file”. A second notebook-type
window will open, presenting the sets of data files supplied with the package (see Figure 2.1). Select
the first tab, “Ramanathan”. The numbering of the files in this section corresponds to the chapter
organization of Ramanathan (2002), which contains discussion of the analysis of these data. The
data will be useful for practice purposes even without the text.
Figure 2.1: Practice data files window
If you select a row in this window and click on “Info” this opens a window showing information on
the data set in question (for example, on the sources and definitions of the variables). If you find
a file that is of interest, you may open it by clicking on “Open”, or just double-clicking on the file
name. For the moment let’s open data3-6.
☞ In gretl windows containing lists, double-clicking on a line launches a default action for the associated list
entry: e.g. displaying the values of a data series, opening a file.
1 For convenience we refer to the graphical client program simply as gretl in this manual. Note, however, that the
specific name of the program differs according to the computer platform. On Linux it is called gretl_x11 while on
MS Windows it is gretl.exe. On Linux systems a wrapper script named gretl is also installed — see also the Gretl
Command Reference.
4
Chapter 2. Getting started 5
This file contains data pertaining to a classic econometric “chestnut”, the consumption function.
The data window should now display the name of the current data file, the overall data range and
sample range, and the names of the variables along with brief descriptive tags — see Figure 2.2.
Figure 2.2: Main window, with a practice data file open
OK, what can we do now? Hopefully the various menu options should be fairly self explanatory. For
now we’ll dip into the Model menu; a brief tour of all the main window menus is given in Section 2.3
below.
Gretl’s Model menu offers numerous various econometric estimation routines. The simplest and
most standard is Ordinary Least Squares (OLS). Selecting OLS pops up a dialog box calling for a
model specification —see Figure 2.3.
Figure 2.3: Model specification dialog
To select the dependent variable, highlight the variable you want in the list on the left and click
the arrow that points to the Dependent variable slot. If you check the “Set as default” box this
variable will be pre-selected as dependent when you next open the model dialog box. Shortcut:
double-clicking on a variable on the left selects it as dependent and also sets it as the default. To
select independent variables, highlight them on the left and click the green arrow (or right-click the
highlighted variable); to remove variables from the selected list, use the rad arrow. To select several
variable in the list box, drag the mouse over them; to select several non-contiguous variables, hold
down the Ctrl key and click on the variables you want. To run a regression with consumption as
the dependent variable and income as independent, click Ct into the Dependent slot and add Yt to
the Independent variables list.
2.2 Estimation output

Once you’ve specified a model, a window displaying the regression output will appear. The output
is reasonably comprehensive and in a standard format (Figure 2.4).
Figure 2.4: Model output window
The output window contains menus that allow you to inspect or graph the residuals and fitted
values, and to run various diagnostic tests on the model.
For most models there is also an option to print the regression output in LATEX format. See Chap-
ter 43 for details.
To import gretl output into a word processor, you may copy and paste from an output window,
using its Edit menu (or Copy button, in some contexts) to the target program. Many (not all) gretl
windows offer the option of copying in RTF (Microsoft’s “Rich Text Format”) or as LATEX. If you are
pasting into a word processor, RTF may be a good option because the tabular formatting of the
output is preserved.2 Alternatively, you can save the output to a (plain text) file then import the
file into the target program. When you finish a gretl session you are given the option of saving all
the output from the session to a single file.
Note that on the gnome desktop and under MS Windows, the File menu includes a command to
send the output directly to a printer.
☞ When pasting or importing plain text gretl output into a word processor, select a monospaced or typewriter-
style font (e.g. Courier) to preserve the output’s tabular formatting. Select a small font (10-point Courier
should do) to prevent the output lines from being broken in the wrong place.
2 Note that when you copy as RTF under MS Windows, Windows will only allow you to paste the material into ap-
plications that “understand” RTF. Thus you will be able to paste into MS Word, but not into notepad. Note also that
there appears to be a bug in some versions of Windows, whereby the paste will not work properly unless the “target”
application (e.g. MS Word) is already running prior to copying the material in question.
2.3 The main window menus

Reading left to right along the main window’s menu bar, we find the File, Tools, Data, View, Add,
Sample, Variable, Model and Help menus.
• File menu
– Open data: Open a native gretl data file or import from other formats. See Chapter 4.
– Append data: Add data to the current working data set, from a gretl data file, a comma-
separated values file or a spreadsheet file.
– Save data: Save the currently open native gretl data file.
– Save data as: Write out the current data set in native format, with the option of using
gzip data compression. See Chapter 4.
– Export data: Write out the current data set in Comma Separated Values (CSV) format, or
the formats of GNU R or GNU Octave. See Chapter 4 and also Appendix D.
– Send to: Send the current data set as an e-mail attachment.
– New data set: Allows you to create a blank data set, ready for typing in values or for
importing series from a database. See below for more on databases.
– Clear data set: Clear the current data set out of memory. Generally you don’t have to do
this (since opening a new data file automatically clears the old one) but sometimes it’s
useful.
– Working directory: Change the current working directory (or “workdir”) and specify re-
lated options. For an explanation of the role of the workdir click the Help button in the
dialog window which is presented, or refer to the documentation of the set command
with the workdir option in the command reference.
– Script files: A “script” is a file containing a sequence of gretl commands. This item
contains entries that let you open a script you have created previously (“User file”), open
a sample script, or open an editor window in which you can create a new script.
– Session files: A “session” file contains a snapshot of a previous gretl session, including
the data set used and any models or graphs that you saved. Under this item you can
open a saved session or save the current session.
– Databases: Allows you to browse various large databases, either on your own computer
or, if you are connected to the internet, on the gretl database server. See Section 4.2 for
details.
– Function packages: Manage user-contributed function packages that extend gretl’s capa-
bilities. To learn more about such packages written in gretl’s built-in matrix and scripting
language “hansl”, please refer to the “Packages” entry in Help menu.
– Resource from addon: Access example scripts and datafiles that are shipped as part of
gretl’s official “addons”. (Addons are function packages that are more tightly integrated
with the gretl program than standard user-contributed packages.)
– Exit: Quit the program. You’ll be prompted to save any unsaved work.
• Tools menu
– Statistical tables: Look up critical values for commonly used distributions (normal or
Gaussian, t, chi-square, F and Durbin–Watson).
– P-value finder: Look up p-values from the Gaussian, t, chi-square, F, gamma, binomial or
Poisson distributions. See also the pvalue command in the Gretl Command Reference.
– Distribution graphs: Produce graphs of various probability distributions. In the resulting

graph window, the pop-up menu includes an item “Add another curve”, which enables
you to superimpose a further plot (for example, you can draw the t distribution with
various different degrees of freedom).
– Test statistic calculator: Calculate test statistics and p-values for a range of common hy-
pothesis tests (population mean, variance and proportion; difference of means, variances
and proportions).
– Nonparametric tests: Calculate test statistics for various nonparametric tests (Sign test,
Wilcoxon rank sum test, Wilcoxon signed rank test, Runs test).
– Seed for random numbers: Set the seed for the random number generator (by default
this is set based on the system time when the program is started).
– Command log: Open a window containing a record of the commands executed so far.
– Gretl console: Open a “console” window into which you can type commands as you would
using the command-line program, gretlcli (as opposed to using point-and-click).
– Start Gnu R: Start R (if it is installed on your system), and load a copy of the data set
currently open in gretl. See Appendix D.
– Sort variables: Rearrange the listing of variables in the main window, either by ID number
or alphabetically by name.
– Function packages: Handles “function packages” (see Section 14.5), which allow you to
access functions written by other users and share the ones written by you.
– NIST test suite: Check the numerical accuracy of gretl against the reference results for
linear regression made available by the (US) National Institute of Standards and Technol-
ogy.
– Preferences: Set the paths to various files gretl needs to access. Choose the font in which
gretl displays text output. Activate or suppress gretl’s messaging about the availability
of program updates, and so on. See the Gretl Command Reference for further details.
• Data menu
– Select all: Several menu items act upon those variables that are currently selected in the
main window. This item lets you select all the variables.
– Display values: Pops up a window with a simple (not editable) printout of the values of
the selected variable or variables.
– Edit values: Opens a spreadsheet window where you can edit the values of the selected
variables.
– Add observations: Gives a dialog box in which you can choose a number of observations
to add at the end of the current dataset; for use with forecasting.
– Remove extra observations: Active only if extra observations have been added automati-
cally in the process of forecasting; deletes these extra observations.
– Read info, Edit info: “Read info” just displays the summary information for the current
data file; “Edit info” allows you to make changes to it (if you have permission to do so).
– Print description: Opens a window containing a full account of the current dataset, in-
cluding the summary information and any specific information on each of the variables.
– Add case markers: Prompts for the name of a text file containing “case markers” (short
strings identifying the individual observations) and adds this information to the data set.
See Chapter 4.
– Remove case markers: Active only if the dataset has case markers identifying the obser-
vations; removes these case markers.
– Dataset structure: invokes a series of dialog boxes which allow you to change the struc-
tural interpretation of the current dataset. For example, if data were read in as a cross
section you can get the program to interpret them as time series or as a panel. See also
section 4.4.
– Compact data: For time-series data of higher than annual frequency, gives you the option
of compacting the data to a lower frequency, using one of four compaction methods
(average, sum, start of period or end of period).
– Expand data: For time-series data, gives you the option of expanding the data to a higher
frequency.
– Transpose data: Turn each observation into a variable and vice versa (or in other words,
each row of the data matrix becomes a column in the modified data matrix); can be useful
with imported data that have been read in “sideways”.
• View menu
– Icon view: Opens a window showing the content of the current session as a set of icons;
see section 3.4.
– Graph specified vars: Gives a choice between a time series plot, a regular X–Y scatter
plot, an X–Y plot using impulses (vertical bars), an X–Y plot “with factor separation” (i.e.
with the points colored differently depending to the value of a given dummy variable),
boxplots, and a 3-D graph. Serves up a dialog box where you specify the variables to
graph. See Chapter 6 for details.
– Multiple graphs: Allows you to compose a set of up to six small graphs, either pairwise
scatter-plots or time-series graphs. These are displayed together in a single window.
– Summary statistics: Shows a full set of descriptive statistics for the variables selected in
the main window.
– Correlation matrix: Shows the pairwise correlation coefficients for the selected variables.
– Cross Tabulation: Shows a cross-tabulation of the selected variables. This works only if
at least two variables in the data set have been marked as discrete (see Chapter 12).
– Principal components: Produces a Principal Components Analysis for the selected vari-
ables.
– Mahalanobis distances: Computes the Mahalanobis distance of each observation from
the centroid of the selected set of variables.
– Cross-correlogram: Computes and graphs the cross-correlogram for two selected vari-
ables.
• Add menu Offers various standard transformations of variables (logs, lags, squares, etc.) that
you may wish to add to the data set. Also gives the option of adding random variables, and
(for time-series data) adding seasonal dummy variables (e.g. quarterly dummy variables for
quarterly data).
• Sample menu
– Set range: Select a different starting and/or ending point for the current sample, within
the range of data available.
– Restore full range: self-explanatory.
– Define, based on dummy: Given a dummy (indicator) variable with values 0 or 1, this
drops from the current sample all observations for which the dummy variable has value
0.
– Restrict, based on criterion: Similar to the item above, except that you don’t need a pre-
defined variable: you supply a Boolean expression (e.g. sqft > 1400) and the sample is
restricted to observations satisfying that condition. See the entry for genr in the Gretl
Command Reference for details on the Boolean operators that can be used.
– Random sub-sample: Draw a random sample from the full dataset.

– Drop all obs with missing values: Drop from the current sample all observations for
which at least one variable has a missing value (see Section 4.6).
– Count missing values: Give a report on observations where data values are missing. May
be useful in examining a panel data set, where it’s quite common to encounter missing
values.
– Set missing value code: Set a numerical value that will be interpreted as “missing” or “not
available”. This is intended for use with imported data, when gretl has not recognized
the missing-value code used.
• Variable menu Most items under here operate on a single variable at a time. The “active”
variable is set by highlighting it (clicking on its row) in the main data window. Most options
will be self-explanatory. Note that you can rename a variable and can edit its descriptive label
under “Edit attributes”. You can also “Define a new variable” via a formula (e.g. involving
some function of one or more existing variables). For the syntax of such formulae, look at the
online help for “Generate variable syntax” or see the genr command in the Gretl Command
Reference. One simple example:
foo = x1 * x2
will create a new variable foo as the product of the existing variables x1 and x2. In these
formulae, variables must be referenced by name, not number.
• Model menu For details on the various estimators offered under this menu please consult the
Gretl Command Reference. Also see Chapter 25 regarding the estimation of nonlinear models.
• Help menu Please use this as needed! It gives details on the syntax required in various dialog
entries.
2.4 Keyboard shortcuts

When working in the main gretl window, some common operations may be performed using the
keyboard, as shown in the table below.
Return Opens a window displaying the values of the currently selected variables: it is
the same as selecting “Data, Display Values”.
Delete Pressing this key has the effect of deleting the selected variables. A confirma-
tion is required, to prevent accidental deletions.
e Has the same effect as selecting “Edit attributes” from the “Variable” menu.
F2 Same as “e”. Included for compatibility with other programs.
g Has the same effect as selecting “Define new variable” from the “Variable”
menu (which maps onto the genr command).
h Opens a help window for gretl commands.
F1 Same as “h”. Included for compatibility with other programs.
r Refreshes the variable list in the main window.
t Graphs the selected variable; a line graph is used for time-series datasets,
whereas a distribution plot is used for cross-sectional data.
2.5 The gretl toolbar

At the bottom left of the main window sits the toolbar.
The icons have the following functions, reading from left to right:
1. Launch a calculator program. A convenience function in case you want quick access to a
calculator when you’re working in gretl. The default program is calc.exe under MS Win-
dows, or xcalc under the X window system. You can change the program under the “Tools,
Preferences, General” menu, “Programs” tab.
2. Start a new script. Opens an editor window in which you can type a series of commands to be
sent to the program as a batch.
3. Open the gretl console. A shortcut to the “Gretl console” menu item (Section 2.3 above).
4. Open the session icon window.
5. Open a window displaying available gretl function packages.
6. Open this manual in PDF format.
7. Open the help item for script commands syntax (i.e. a listing with details of all available
commands).
8. Open the dialog box for defining a graph.
9. Open the dialog box for estimating a model using ordinary least squares.
10. Open a window listing the sample datasets supplied with gretl, and any other data file collec-
tions that have been installed.
Chapter 3
Modes of working
3.1 Command scripts

As you execute commands in gretl, using the GUI and filling in dialog entries, those commands are
recorded in the form of a “script” or batch file. Such scripts can be edited and re-run, using either
gretl or the command-line client, gretlcli.
To view the current state of the script at any point in a gretl session, choose “Command log” under
the Tools menu. This log file is called session.inp and it is overwritten whenever you start a new
session. To preserve it, save the script under a different name. Script files will be found most easily,
using the GUI file selector, if you name them with the extension “.inp”.
To open a script you have written independently, use the “File, Script files” menu item; to create a
script from scratch use the “File, Script files, New script” item or the “new script” toolbar button.
In either case a script window will open (see Figure 3.1).
Figure 3.1: Script window, editing a command file
The toolbar at the top of the script window offers the following functions (left to right): (1) Save
the file; (2) Save the file under a specified name; (3) Print the file (this option is not available on all
platforms); (4) Execute the commands in the file; (5) Copy selected text; (6) Paste the selected text;
(7) Find and replace text; (8) Undo the last Paste or Replace action; (9) Help (if you place the cursor
in a command word and press the question mark you will get help on that command); (10) Close
the window.
When you execute the script, by clicking on the Execute icon or by pressing Ctrl-r, all output is
directed to a single window, where it can be edited, saved or copied to the clipboard. To learn
more about the possibilities of scripting, take a look at the gretl Help item “Command reference,”
12
Chapter 3. Modes of working 13
or start up the command-line program gretlcli and consult its help, or consult the Gretl Command
Reference.
If you run the script when part of it is highlighted, gretl will only run that portion. Moreover, if you
want to run just the current line, you can do so by pressing Ctrl-Enter.1
Clicking the right mouse button in the script editor window produces a pop-up menu. This gives
you the option of executing either the line on which the cursor is located, or the selected region of
the script if there’s a selection in place. If the script is editable, this menu also gives the option of
adding or removing comment markers from the start of the line or lines.
The gretl package includes over 70 example scripts. Many of these relate to Ramanathan (2002),
but they may also be used as a free-standing introduction to scripting in gretl and to various points
of econometric theory. You can explore the example files under “File, Script files, Example scripts”
There you will find a listing of the files along with a brief description of the points they illustrate
and the data they employ. Open any file and run it to see the output. Note that long commands in
a script can be broken over two or more lines, using backslash as a continuation character.
You can, if you wish, use the GUI controls and the scripting approach in tandem, exploiting each
method where it offers greater convenience. Here are two suggestions.
• Open a data file in the GUI. Explore the data — generate graphs, run regressions, perform tests.
Then open the Command log, edit out any redundant commands, and save it under a specific
name. Run the script to generate a single file containing a concise record of your work.
• Start by establishing a new script file. Type in any commands that may be required to set
up transformations of the data (see the genr command in the Gretl Command Reference).
Typically this sort of thing can be accomplished more efficiently via commands assembled
with forethought rather than point-and-click. Then save and run the script: the GUI data
window will be updated accordingly. Now you can carry out further exploration of the data
via the GUI. To revisit the data at a later point, open and rerun the “preparatory” script first.
Scripts and data files

One common way of doing econometric research with gretl is as follows: compose a script; execute
the script; inspect the output; modify the script; run it again — with the last three steps repeated as
many times as necessary. In this context, note that when you open a data file this clears out most
of gretl’s internal state. It’s therefore probably a good idea to have your script start with an open
command: the data file will be re-opened each time, and you can be confident you’re getting “fresh”
results.
One further point should be noted. When you go to open a new data file via the graphical interface,
you are always prompted: opening a new data file will lose any unsaved work, do you really want
to do this? When you execute a script that opens a data file, however, you are not prompted. The
assumption is that in this case you’re not going to lose any work, because the work is embodied
in the script itself (and it would be annoying to be prompted at each iteration of the work cycle
described above).
This means you should be careful if you’ve done work using the graphical interface and then decide
to run a script: the current data file will be replaced without any questions asked, and it’s your
responsibility to save any changes to your data first.
1 This feature is not unique to gretl; other econometric packages offer the same facility. However, experience shows
that while this can be remarkably useful, it can also lead to writing dinosaur scripts that are never meant to be executed
all at once, but rather used as a chaotic repository to cherry-pick snippets from. Since gretl allows you to have several
script windows open at the same time, you may want to keep your scripts tidy and reasonably small.
3.2 Saving script objects

When you estimate a model using point-and-click, the model results are displayed in a separate
window, offering menus which let you perform tests, draw graphs, save data from the model, and
so on. Ordinarily, when you estimate a model using a script you just get a non-interactive printout
of the results. You can, however, arrange for models estimated in a script to be “captured”, so that
you can examine them interactively when the script is finished. Here is an example of the syntax
for achieving this effect:
Model1 <- ols Ct 0 Yt
That is, you type a name for the model to be saved under, then a back-pointing “assignment arrow”,
then the model command. The assignment arrow is composed of the less-than sign followed by a
dash; it must be separated by spaces from both the preceding name and the following command.
The name for a saved object may include spaces, but in that case it must be wrapped in double
quotes:
"Model 1" <- ols Ct 0 Yt
Models saved in this way will appear as icons in the gretl icon view window (see Section 3.4) after
the script is executed. In addition, you can arrange to have a named model displayed (in its own
window) automatically as follows:
Model1.show
Again, if the name contains spaces it must be quoted:
"Model 1".show
The same facility can be used for graphs. For example the following will create a plot of Ct against
Yt, save it under the name “CrossPlot” (it will appear under this name in the icon view window),
and have it displayed:
CrossPlot <- gnuplot Ct Yt

CrossPlot.show
You can also save the output from selected commands as named pieces of text (again, these will
appear in the session icon window, from where you can open them later). For example this com-
mand sends the output from an augmented Dickey–Fuller test to a “text object” named ADF1 and
displays it in a window:
ADF1 <- adf 2 x1

ADF1.show
Objects saved in this way (whether models, graphs or pieces of text output) can be destroyed using
the command .free appended to the name of the object, as in ADF1.free.
3.3 The gretl console

A further option is available for your computing convenience. Under gretl’s “Tools” menu you will
find the item “Gretl console” (there is also an “open gretl console” button on the toolbar in the
main window). This opens up a window in which you can type commands and execute them one
by one (by pressing the Enter key) interactively. This is essentially the same as gretlcli’s mode of
operation, except that the GUI is updated based on commands executed from the console, enabling
you to work back and forth as you wish.
In the console, you have “command history”; that is, you can use the up and down arrow keys to
navigate the list of command you have entered to date. You can retrieve, edit and then re-enter a
previous command.
In console mode, you can create, display and free objects (models, graphs or text) aa described
above for script mode.
3.4 The Session concept

Gretl offers the idea of a “session” as a way of keeping track of your work and revisiting it later.
The basic idea is to provide an iconic space containing various objects pertaining to your current
working session (see Figure 3.2). You can add objects (represented by icons) to this space as you
go along. If you save the session, these added objects should be available again if you re-open the
session later.
Figure 3.2: Icon view: one model and one graph have been added to the default icons
If you start gretl and open a data set, then select “Icon view” from the View menu, you should see
the basic default set of icons: these give you quick access to information on the data set (if any),
correlation matrix (“Correlations”) and descriptive summary statistics (“Summary”). All of these
are activated by double-clicking the relevant icon. The “Data set” icon is a little more complex:
double-clicking opens up the data in the built-in spreadsheet, but you can also right-click on the
icon for a menu of other actions.
To add a model to the Icon view, first estimate it using the Model menu. Then pull down the File
menu in the model window and select “Save to session as icon. . . ” or “Save as icon and close”.
Simply hitting the S key over the model window is a shortcut to the latter action.
To add a graph, first create it (under the View menu, “Graph specified vars”, or via one of gretl’s
other graph-generating commands). Click on the graph window to bring up the graph menu, and
select “Save to session as icon”.
Once a model or graph is added its icon will appear in the Icon view window. Double-clicking on the
icon redisplays the object, while right-clicking brings up a menu which lets you display or delete
the object. This popup menu also gives you the option of editing graphs.
The model table

In econometric research it is common to estimate several models with a common dependent
variable—the models differing in respect of which independent variables are included, or per-
haps in respect of the estimator used. In this situation it is convenient to present the regression
results in the form of a table, where each column contains the results (coefficient estimates and
standard errors) for a given model, and each row contains the estimates for a given variable across
the models. Note that some estimation methods are not compatible with the straightforward model
table format, therefore gretl will not let those models be added to the model table. These meth-
ods include non-linear least squares (nls), generic maximum-likelihood estimators (mle), generic
GMM (gmm), dynamic panel models (dpanel), interval regressions (intreg), bivariate probit models
(biprobit), AR(I)MA models (arima or arma), and (G)ARCH models (garch and arch).
In the Icon view window gretl provides a means of constructing such a table (and copying it in plain
text, LATEX or Rich Text Format). The procedure is outlined below. (The model table can also be built
non-interactively, in script mode—see the entry for modeltab in the Gretl Command Reference.)
1. Estimate a model which you wish to include in the table, and in the model display window,
under the File menu, select “Save to session as icon” or “Save as icon and close”.
2. Repeat step 1 for the other models to be included in the table (up to a total of six models).
3. When you are done estimating the models, open the icon view of your gretl session, by se-
lecting “Icon view” under the View menu in the main gretl window, or by clicking the “session
icon view” icon on the gretl toolbar.
4. In the Icon view, there is an icon labeled “Model table”. Decide which model you wish to
appear in the left-most column of the model table and add it to the table, either by dragging
its icon onto the Model table icon, or by right-clicking on the model icon and selecting “Add
to model table” from the pop-up menu.
5. Repeat step 4 for the other models you wish to include in the table. The second model selected
will appear in the second column from the left, and so on.
6. When you are finished composing the model table, display it by double-clicking on its icon.
Under the Edit menu in the window which appears, you have the option of copying the table
to the clipboard in various formats.
7. If the ordering of the models in the table is not what you wanted, right-click on the model
table icon and select “Clear table”. Then go back to step 4 above and try again.
A simple instance of gretl’s model table is shown in Figure 3.3.
Figure 3.3: Example of model table

The graph page

The “graph page” icon in the session window offers a means of putting together several graphs
for printing on a single page. This facility will work only if you have the LATEX typesetting system
installed, and are able to generate and view either PDF or PostScript output. The output format
is controlled by your choice of program for compiling TEX files, which can be found under the
“Programs” tab in the Preferences dialog box (under the “Tools” menu in the main window). Usually
this should be pdflatex for PDF output or latex for PostScript. In the latter case you must have a
working set-up for handling PostScript, which will usually include dvips, ghostscript and a viewer
such as gv, ggv or kghostview.
In the Icon view window, you can drag up to eight graphs onto the graph page icon. When you
double-click on the icon (or right-click and select “Display”), a page containing the selected graphs
(in PDF or EPS format) will be composed and opened in your viewer. From there you should be able
to print the page.
To clear the graph page, right-click on its icon and select “Clear”.
As with the model table, it is also possible to manipulate the graph page via commands in script or
console mode—see the entry for the graphpg command in the Gretl Command Reference.
Saving and re-opening sessions

If you create models or graphs that you think you may wish to re-examine later, then before quitting
gretl select “Session files, Save session” from the File menu and give a name under which to save
the session. To re-open the session later, either
• Start gretl then re-open the session file by going to the “File, Session files, Open session”, or
• From the command line, type gretl -r sessionfile, where sessionfile is the name under which
the session was saved, or
• Drag the icon representing a session file onto gretl.

Chapter 4
Data files
4.1 Data file formats

Gretl has its own native format for data files. Most users will probably not want to read or write
such files outside of gretl itself, but occasionally this may be useful and details on the file formats
are given in Appendix A. The program can also import data from a variety of other formats. In
the GUI program this can be done via the “File, Open Data, User file” menu — note the drop-down
list of acceptable file types. In script mode, simply use the open command. The supported import
formats are as follows.
• Plain text files (comma-separated or “CSV” being the most common type). For details on what
gretl expects of such files, see Section 4.3.
• Spreadsheets: MS Excel, Gnumeric and Open Document (ODS). The requirements for such files
are given in Section 4.3.
• Stata data files (.dta).
• SPSS data files (.sav).
• SAS “xport” files (.xpt).
• Eviews workfiles (.wf1).1
• JMulTi data files.
When you import data from a plain text format, gretl opens a “diagnostic” window, reporting on its
progress in reading the data. If you encounter a problem with ill-formatted data, the messages in
this window should give you a handle on fixing the problem.
Note that gretl has a facility for writing out data in the native formats of GNU R, Octave, JMulTi and
PcGive (see Appendix D). In the GUI client this option is found under the “File, Export data” menu;
in the command-line client use the store command with the appropriate option flag.
4.2 Databases
For working with large amounts of data gretl is supplied with a database-handling routine. A
database, as opposed to a data file, is not read directly into the program’s workspace. A database
can contain series of mixed frequencies and sample ranges. You open the database and select
series to import into the working dataset. You can then save those series in a native format data
file if you wish. Databases can be accessed via the menu item “File, Databases”.
For details on the format of gretl databases, see Appendix A.
1 See http://users.wfu.edu/cottrell/eviews_format/.
18
Chapter 4. Data files 19
Online access to databases

Several gretl databases are available from Wake Forest University. Your computer must be con-
nected to the internet for this option to work. Please see the description of the “data” command
under the Help menu.
☞ Visit the gretl data page for details and updates on available data.
Foreign database formats

Thanks to Thomas Doan of Estima, who made available the specification of the database format
used by RATS 4 (Regression Analysis of Time Series), gretl can handle such databases — or at least,
a subset of same, namely time-series databases containing monthly and quarterly series.
Gretl can also import data from PcGive databases. These take the form of a pair of files, one
containing the actual data (with suffix .bn7) and one containing supplementary information (.in7).
In addition, gretl offers ODBC connectivity. Be warned: this feature is meant for somewhat ad-
vanced users; there is currently no graphical interface. Interested readers will find more info in
appendix 42.
4.3 Creating a dataset from scratch

There are several ways of doing this:
1. Find, or create using a text editor, a plain text data file and open it via “Import”.
2. Use your favorite spreadsheet to establish the data file, save it in comma-separated format if
necessary (this may not be necessary if the spreadsheet format is MS Excel, Gnumeric or Open
Document), then use one of the “Import” options.
3. Use gretl’s built-in spreadsheet.
4. Select data series from a suitable database.
5. Use your favorite text editor or other software tools to a create data file in gretl format inde-
pendently.
Here are a few comments and details on these methods.
Common points on imported data

Options (1) and (2) involve using gretl’s “import” mechanism. For the program to read such data
successfully, certain general conditions must be satisfied:
• The first row must contain valid variable names. A valid variable name is of 31 characters
maximum; starts with a letter; and contains nothing but letters, numbers and the underscore
character, _. (Longer variable names will be truncated to 31 characters.) Qualifications to the
above: First, in the case of an plain text import, if the file contains no row with variable names
the program will automatically add names, v1, v2 and so on. Second, by “the first row” is
meant the first relevant row. In the case of plain text imports, blank rows and rows beginning
with a hash mark, #, are ignored. In the case of Excel, Gnumeric and ODS imports, you are
presented with a dialog box where you can select an offset into the spreadsheet, so that gretl
will ignore a specified number of rows and/or columns.
• Data values: these should constitute a rectangular block, with one variable per column (and
one observation per row). The number of variables (data columns) must match the number
of variable names given. See also section 4.6. Numeric data are expected, but in the case of
importing from plain text, the program offers limited handling of character (string) data: if
a given column contains character data only, consecutive numeric codes are substituted for
the strings, and once the import is complete a table is printed showing the correspondence
between the strings and the codes.
• Dates (or observation labels): Optionally, the first column may contain strings such as dates,
or labels for cross-sectional observations. Such strings have a maximum of 15 characters (as
with variable names, longer strings will be truncated). A column of this sort should be headed
with the string obs or date, or the first row entry may be left blank.
For dates to be recognized as such, the date strings should adhere to one or other of a set of
specific formats, as follows. For annual data: 4-digit years. For quarterly data: a 4-digit year,
followed by a separator (either a period, a colon, or the letter Q), followed by a 1-digit quarter.
Examples: 1997.1, 2002:3, 1947Q1. For monthly data: a 4-digit year, followed by a period or
a colon, followed by a two-digit month. Examples: 1997.01, 2002:10.
Plain text (“CSV”) files can use comma, space, tab or semicolon as the column separator. When you
open such a file via the GUI you are given the option of specifying the separator, though in most
cases it should be detected automatically.
If you use a spreadsheet to prepare your data you are able to carry out various transformations of
the “raw” data with ease (adding things up, taking percentages or whatever): note, however, that
you can also do this sort of thing easily — perhaps more easily — within gretl, by using the tools
under the “Add” menu.
Appending imported data

You may wish to establish a dataset piece by piece, by incremental importation of data from other
sources. This is supported via the “File, Append data” menu items: gretl will check the new data for
conformability with the existing dataset and, if everything seems OK, will merge the data. You can
add new variables in this way, provided the data frequency matches that of the existing dataset. Or
you can append new observations for data series that are already present; in this case the variable
names must match up correctly. Note that by default (that is, if you choose “Open data” rather
than “Append data”), opening a new data file closes the current one.
Using the built-in spreadsheet

Under the “File, New data set” menu you can choose the sort of dataset you want to establish (e.g.
quarterly time series, cross-sectional). You will then be prompted for starting and ending dates (or
observation numbers) and the name of the first variable to add to the dataset. After supplying this
information you will be faced with a simple spreadsheet into which you can type data values. In
the spreadsheet window, clicking the right mouse button will invoke a popup menu which enables
you to add a new variable (column), to add an observation (append a row at the foot of the sheet),
or to insert an observation at the selected point (move the data down and insert a blank row.)
Once you have entered data into the spreadsheet you import these into gretl’s workspace using the
spreadsheet’s “Apply changes” button.
Please note that gretl’s spreadsheet is quite basic and has no support for functions or formulas.
Data transformations are done via the “Add” or “Variable” menus in the main window.
Selecting from a database

Another alternative is to establish your dataset by selecting variables from a database.
Begin with the “File, Databases” menu item. This has four forks: “Gretl native”, “RATS 4”, “PcGive”
and “On database server”. You should be able to find the file fedstl.bin in the file selector that
opens if you choose the “Gretl native” option since this file, which contains a large collection of US
macroeconomic time series, is supplied with the distribution.
You won’t find anything under “RATS 4” unless you have purchased RATS data.2 If you do possess
RATS data you should go into the “Tools, Preferences, General” dialog, select the Databases tab,
and fill in the correct path to your RATS files.
If your computer is connected to the internet you should find several databases (at Wake Forest
University) under “On database server”. You can browse these remotely; you also have the option
of installing them onto your own computer. The initial remote databases window has an item
showing, for each file, whether it is already installed locally (and if so, if the local version is up to
date with the version at Wake Forest).
Assuming you have managed to open a database you can import selected series into gretl’s workspace
by using the “Series, Import” menu item in the database window, or via the popup menu that ap-
pears if you click the right mouse button, or by dragging the series into the program’s main window.
Creating a gretl data file independently

It is possible to create a data file in one or other of gretl’s own formats using a text editor or
software tools such as awk, sed or perl. This may be a good choice if you have large amounts
of data already in machine readable form. You will, of course, need to study these data formats
(XML-based or “traditional”) as described in Appendix A.
4.4 Structuring a dataset

Once your data are read by gretl, it may be necessary to supply some information on the nature of
the data. We distinguish between three kinds of datasets:
1. Cross section
2. Time series
3. Panel data
The primary tool for doing this is the “Data, Dataset structure” menu entry in the graphical inter-
face, or the setobs command for scripts and the command-line interface.
Cross sectional data

By a cross section we mean observations on a set of “units” (which may be firms, countries, indi-
viduals, or whatever) at a common point in time. This is the default interpretation for a data file:
if there is insufficient information to interpret data as time-series or panel data, they are automat-
ically interpreted as a cross section. In the unlikely event that cross-sectional data are wrongly
interpreted as time series, you can correct this by selecting the “Data, Dataset structure” menu
item. Click the “cross-sectional” radio button in the dialog box that appears, then click “Forward”.
Click “OK” to confirm your selection.
Time series data

When you import data from a spreadsheet or plain text file, gretl will make fairly strenuous efforts
to glean time-series information from the first column of the data, if it looks at all plausible that
such information may be present. If time-series structure is present but not recognized, again you
can use the “Data, Dataset structure” menu item. Select “Time series” and click “Forward”; select the
appropriate data frequency and click “Forward” again; then select or enter the starting observation
2 See www.estima.com
and click “Forward” once more. Finally, click “OK” to confirm the time-series interpretation if it is
correct (or click “Back” to make adjustments if need be).
Besides the basic business of getting a data set interpreted as time series, further issues may arise
relating to the frequency of time-series data. In a gretl time-series data set, all the series must
have the same frequency. Suppose you wish to make a combined dataset using series that, in their
original state, are not all of the same frequency. For example, some series are monthly and some
are quarterly.
Your first step is to formulate a strategy: Do you want to end up with a quarterly or a monthly data
set? A basic point to note here is that “compacting” data from a higher frequency (e.g. monthly) to
a lower frequency (e.g. quarterly) is usually unproblematic. You lose information in doing so, but
in general it is perfectly legitimate to take (say) the average of three monthly observations to create
a quarterly observation. On the other hand, “expanding” data from a lower to a higher frequency is
not, in general, a valid operation.
In most cases, then, the best strategy is to start by creating a data set of the lower frequency, and
then to compact the higher frequency data to match. When you import higher-frequency data from
a database into the current data set, you are given a choice of compaction method (average, sum,
start of period, or end of period). In most instances “average” is likely to be appropriate.
You can also import lower-frequency data into a high-frequency data set, but this is generally not
recommended. What gretl does in this case is simply replicate the values of the lower-frequency
series as many times as required. For example, suppose we have a quarterly series with the value
35.5 in 1990:1, the first quarter of 1990. On expansion to monthly, the value 35.5 will be assigned
to the observations for January, February and March of 1990. The expanded variable is therefore
useless for fine-grained time-series analysis, outside of the special case where you know that the
variable in question does in fact remain constant over the sub-periods.
When the current data frequency is appropriate, gretl offers both “Compact data” and “Expand
data” options under the “Data” menu. These options operate on the whole data set, compacting or
exanding all series. They should be considered “expert” options and should be used with caution.
Panel data
Panel data are inherently three dimensional — the dimensions being variable, cross-sectional unit,
and time-period. For example, a particular number in a panel data set might be identified as the
observation on capital stock for General Motors in 1980. (A note on terminology: we use the
terms “cross-sectional unit”, “unit” and “group” interchangeably below to refer to the entities that
compose the cross-sectional dimension of the panel. These might, for instance, be firms, countries
or persons.)
For representation in a textual computer file (and also for gretl’s internal calculations) the three
dimensions must somehow be flattened into two. This “flattening” involves taking layers of the
data that would naturally stack in a third dimension, and stacking them in the vertical dimension.
gretl always expects data to be arranged “by observation”, that is, such that each row represents an
observation (and each variable occupies one and only one column). In this context the flattening of
a panel data set can be done in either of two ways:
• Stacked time series: the successive vertical blocks each comprise a time series for a given
unit.
• Stacked cross sections: the successive vertical blocks each comprise a cross-section for a
given period.
You may input data in whichever arrangement is more convenient. Internally, however, gretl always
stores panel data in the form of stacked time series.
4.5 Panel data specifics

When you import panel data into gretl from a spreadsheet or comma separated format, the panel
nature of the data will not be recognized automatically (most likely the data will be treated as
“undated”). A panel interpretation can be imposed on the data using the graphical interface or via
the setobs command.
In the graphical interface, use the menu item “Data, Dataset structure”. In the first dialog box
that appears, select “Panel”. In the next dialog you have a three-way choice. The first two options,
“Stacked time series” and “Stacked cross sections” are applicable if the data set is already organized
in one of these two ways. If you select either of these options, the next step is to specify the number
of cross-sectional units in the data set. The third option, “Use index variables”, is applicable if the
data set contains two variables that index the units and the time periods respectively; the next step
is then to select those variables. For example, a data file might contain a country code variable and
a variable representing the year of the observation. In that case gretl can reconstruct the panel
structure of the data regardless of how the observation rows are organized.
The setobs command has options that parallel those in the graphical interface. If suitable index
variables are available you can do, for example
setobs unitvar timevar --panel-vars
where unitvar is a variable that indexes the units and timevar is a variable indexing the periods.
Alternatively you can use the form setobs freq 1:1 structure, where freq is replaced by the “block
size” of the data (that is, the number of periods in the case of stacked time series, or the number
of units in the case of stacked cross-sections) and structure is either --stacked-time-series or
--stacked-cross-section. Two examples are given below: the first is suitable for a panel in
the form of stacked time series with observations from 20 periods; the second for stacked cross
sections with 5 units.
setobs 20 1:1 --stacked-time-series

setobs 5 1:1 --stacked-cross-section
Panel data arranged by variable

Publicly available panel data sometimes come arranged “by variable.” Suppose we have data on two
variables, x1 and x2, for each of 50 states in each of 5 years (giving a total of 250 observations
per variable). One textual representation of such a data set would start with a block for x1, with
50 rows corresponding to the states and 5 columns corresponding to the years. This would be
followed, vertically, by a block with the same structure for variable x2. A fragment of such a data
file is shown below, with quinquennial observations 1965–1985. Imagine the table continued for
48 more states, followed by another 50 rows for variable x2.
x1
1965 1970 1975 1980 1985
AR 100.0 110.5 118.7 131.2 160.4
AZ 100.0 104.3 113.8 120.9 140.6
If a datafile with this sort of structure is read into gretl,3 the program will interpret the columns as
distinct variables, so the data will not be usable “as is.” But there is a mechanism for correcting the
situation, namely the stack function.
Consider the first data column in the fragment above: the first 50 rows of this column constitute a
cross-section for the variable x1 in the year 1965. If we could create a new series by stacking the
3 Note that you will have to modify such a datafile slightly before it can be read at all. The line containing the variable
name (in this example x1) will have to be removed, and so will the initial row containing the years, otherwise they will be
taken as numerical data.
first 50 entries in the second column underneath the first 50 entries in the first, we would be on the
way to making a data set “by observation” (in the first of the two forms mentioned above, stacked
cross-sections). That is, we’d have a column comprising a cross-section for x1 in 1965, followed by
a cross-section for the same variable in 1970.
The following gretl script illustrates how we can accomplish the stacking, for both x1 and x2. We
assume that the original data file is called panel.txt, and that in this file the columns are headed
with “variable names” v1, v2, . . . , v5. (The columns are not really variables, but in the first instance
we “pretend” that they are.)
open panel.txt
series x1 = stack(v1..v5, 50)
series x2 = stack(v1..v5, 50, 50)
setobs 50 1:1 --stacked-cross-section
store panel.gdt x1 x2
The second and third lines illustrate the syntax of the stack function, which has this signature:
series stack(list L, scalar length, scalar offset)
• L: a list of series on which to operate.
• length: an integer giving the number of observations to take from each series.
• offset: an integer giving the offset from the top of the dataset at which to start taking values
(optional, defaults to 0).
The “..” syntax in the example above constructs a list of the 5 contiguous series to be stacked.
More generally, you can define a named list of series and pass that as the first argument to stack
(see chapter 15). In this example we’re supposing that the full data set contains 100 rows, and that
in the stacking of variable x1 we wish to read only the first 50 rows from each column, so we give
50 as the second argument.
On line 3 we do the stacking for variable x2. Again we want a length of 50 for the components of
the stacked series, but this time we want to start reading from the 50th row of the original data,
and so we add a third offset argument of 50. Line 4 then imposes a panel interpretation on the
data. Finally, we save the stacked data to file, with the panel interpretation.
The illustrative script above is appropriate when the number of variables to be processed is small.
When then are many variables in the dataset it will be more convenient to use a loop to accomplish
the stacking, as shown in the following script. The setup is presumed to be the same as in the
previous case (50 units, 5 periods), but with 20 variables rather than 2.
open panel.txt
list L = v1..v5 # predefine a list of series
scalar length = 50
loop i=1..20
scalar offset = (i - 1) * length
series x$i = stack(L, length, offset)
endloop
setobs 50 1.01 --stacked-cross-section
store panel.gdt x1..x20
Side-by-side time series

There’s a second sort of data that you may wish to convert to gretl’s panel format, namely side-
by-side time series for a number of cross-sectional units. For example, a data file might contain
separate GDP series of common length T for each of N countries. To turn these into a single stacked
time series the stack function can again be used. An example follows, where we suppose the
original data source is a comma-separated file named GDP.csv, containing GDP data for countries
from Austria (GDP_AT) to Zimbabwe (GDP_ZW) in consecutive columns.
open GDP.csv
scalar T = $nobs # the number of periods
list L = GDP_AT..GDP_ZW
series GDP = stack(L, T)
setobs T 1:01 --stacked-time-series
store panel.gdt GDP
The resulting data file, panel.gdt, will contain a single series of length NT where N is the number
of countries and T is the length of the original dataset. One could insert revised variants of lines
3 and 4 of the script if the original file contained additional side-by-side per-country series for
investment, consumption or whatever.
Panel data marker strings

It can be helpful with panel data to have the observations identified by mnemonic markers. A
special function in the genr command is available for this purpose.
In the example under the heading “Panel data arranged by variable” above, suppose all the states
are identified by two-letter codes in the left-most column of the original datafile. When the stack
function is invoked as shown, these codes will be stacked along with the data values. If the first row
is marked AR for Arkansas, then the marker AR will end up being shown on each row containing an
observation for Arkansas. That’s all very well, but these markers don’t tell us anything about the
date of the observation. To rectify this we could do:
genr time
series year = 1960 + (5 * time)
genr markers = "%s:%d", marker, year
The first line generates a 1-based index representing the period of each observation, and the second
line uses the time variable to generate a variable representing the year of the observation. The
third line contains this special feature: if (and only if) the name of the new “variable” to generate is
markers, the portion of the command following the equals sign is taken as a C-style format string
(which must be wrapped in double quotes), followed by a comma-separated list of arguments.
The arguments will be printed according to the given format to create a new set of observation
markers. Valid arguments are either the names of variables in the dataset, or the string marker
which denotes the pre-existing observation marker. The format specifiers which are likely to be
useful in this context are %s for a string and %d for an integer. Strings can be truncated: for
example %.3s will use just the first three characters of the string. To chop initial characters off
an existing observation marker when constructing a new one, you can use the syntax marker + n,
where n is a positive integer: in the case the first n characters will be skipped.
After the commands above are processed, then, the observation markers will look like, for example,
AR:1965, where the two-letter state code and the year of the observation are spliced together with
a colon.
Panel dummy variables

In a panel study you may wish to construct dummy variables of one or both of the following sorts:
(a) dummies as unique identifiers for the units or groups, and (b) dummies as unique identifiers for
the time periods. The former may be used to allow the intercept of the regression to differ across
the units, the latter to allow the intercept to differ across periods.
Two special functions are available to create such dummies. These are found under the “Add”
menu in the GUI, or under the genr command in script mode or gretlcli.
1. “unit dummies” (script command genr unitdum). This command creates a set of dummy
variables identifying the cross-sectional units. The variable du_1 will have value 1 in each
row corresponding to a unit 1 observation, 0 otherwise; du_2 will have value 1 in each row
corresponding to a unit 2 observation, 0 otherwise; and so on.
2. “time dummies” (script command genr timedum). This command creates a set of dummy
variables identifying the periods. The variable dt_1 will have value 1 in each row correspond-
ing to a period 1 observation, 0 otherwise; dt_2 will have value 1 in each row corresponding
to a period 2 observation, 0 otherwise; and so on.
If a panel data set has the YEAR of the observation entered as one of the variables you can create a
periodic dummy to pick out a particular year, e.g. genr dum = (YEAR==1960). You can also create
periodic dummy variables using the modulus operator, %. For instance, to create a dummy with
value 1 for the first observation and every thirtieth observation thereafter, 0 otherwise, do
genr index
series dum = ((index-1) % 30) == 0
Lags, differences, trends

If the time periods are evenly spaced you may want to use lagged values of variables in a panel
regression (but see also chapter 24); you may also wish to construct first differences of variables of
interest.
Once a dataset is identified as a panel, gretl will handle the generation of such variables correctly.
For example the command genr x1_1 = x1(-1) will create a variable that contains the first lag
of x1 where available, and the missing value code where the lag is not available (e.g. at the start of
the time series for each group). When you run a regression using such variables, the program will
automatically skip the missing observations.
When a panel data set has a fairly substantial time dimension, you may wish to include a trend in
the analysis. The command genr time creates a variable named time which runs from 1 to T for
each unit, where T is the length of the time-series dimension of the panel. If you want to create an
index that runs consecutively from 1 to m × T , where m is the number of units in the panel, use
genr index.
Basic statistics by unit

gretl contains functions which can be used to generate basic descriptive statistics for a given vari-
able, on a per-unit basis; these are pnobs() (number of valid cases), pmin() and pmax() (minimum
and maximum) and pmean() and psd() (mean and standard deviation).
As a brief illustration, suppose we have a panel data set comprising 8 time-series observations on
each of N units or groups. Then the command
series pmx = pmean(x)
creates a series of this form: the first 8 values (corresponding to unit 1) contain the mean of x for
unit 1, the next 8 values contain the mean for unit 2, and so on. The psd() function works in a
similar manner. The sample standard deviation for group i is computed as
sP
(x − x̄i )2
si =
Ti − 1
where Ti denotes the number of valid observations on x for the given unit, x̄i denotes the group
mean, and the summation is across valid observations for the group. If Ti < 2, however, the
standard deviation is recorded as 0.
One particular use of psd() may be worth noting. If you want to form a sub-sample of a panel that
contains only those units for which the variable x is time-varying, you can either use
smpl pmin(x) < pmax(x) --restrict
or
smpl psd(x) > 0 --restrict
4.6 Missing data values

Representation and handling
Missing values are represented internally as NaN (“not a number”), as defined in the IEEE 754
floating-point standard. In a native-format data file they should be represented as NA. When im-
porting CSV data gretl accepts several common representations of missing values including −999,
the string NA (in upper or lower case), a single dot, or simply a blank cell. Blank cells should, of
course, be properly delimited, e.g. 120.6,,5.38, in which the middle value is presumed missing.
As for handling of missing values in the course of statistical analysis, gretl does the following:
• In calculating descriptive statistics (mean, standard deviation, etc.) under the summary com-
mand, missing values are simply skipped and the sample size adjusted appropriately.
• In running regressions gretl first adjusts the beginning and end of the sample range, trun-
cating the sample if need be. Missing values at the beginning of the sample are common in
time series work due to the inclusion of lags, first differences and so on; missing values at the
end of the range are not uncommon due to differential updating of series and possibly the
inclusion of leads.
If gretl detects any missing values “inside” the (possibly truncated) sample range for a regression,
the result depends on the character of the dataset and the estimator chosen. In many cases, the
program will automatically skip the missing observations when calculating the regression results.
In this situation a message is printed stating how many observations were dropped. On the other
hand, the skipping of missing observations is not supported for all procedures: exceptions include
all autoregressive estimators, system estimators such as SUR, and nonlinear least squares. In the
case of panel data, the skipping of missing observations is supported only if their omission leaves
a balanced panel. If missing observations are found in cases where they are not supported, gretl
gives an error message and refuses to produce estimates.
Manipulating missing values

Some special functions are available for the handling of missing values. The Boolean function
missing() takes the name of a variable as its single argument; it returns a series with value 1 for
each observation at which the given variable has a missing value, and value 0 otherwise (that is, if
the given variable has a valid value at that observation). The function ok() is complementary to
missing; it is just a shorthand for !missing (where ! is the Boolean NOT operator). For example,
one can count the missing values for variable x using
scalar nmiss_x = sum(missing(x))
The function zeromiss(), which again takes a single series as its argument, returns a series where
all zero values are set to the missing code. This should be used with caution — one does not want
to confuse missing values and zeros— but it can be useful in some contexts. For example, one can
determine the first valid observation for a variable x using
genr time
scalar x0 = min(zeromiss(time * ok(x)))
The function misszero() does the opposite of zeromiss, that is, it converts all missing values to
zero.
If missing values get involved in calculations, they propagate according to the IEEE rules: notably,
if one of the operands to an arithmetical operation is a NaN, the result will also be NaN.
4.7 Maximum size of data sets

Basically, the size of data sets (both the number of variables and the number of observations per
variable) is limited only by the characteristics of your computer. Gretl allocates memory dynami-
cally, and will ask the operating system for as much memory as your data require. Obviously, then,
you are ultimately limited by the size of RAM.
Aside from the multiple-precision OLS option, gretl uses double-precision floating-point numbers
throughout. The size of such numbers in bytes depends on the computer platform, but is typically
eight. To give a rough notion of magnitudes, suppose we have a data set with 10,000 observations
on 500 variables. That’s 5 million floating-point numbers or 40 million bytes. If we define the
megabyte (MB) as 1024 × 1024 bytes, as is standard in talking about RAM, it’s slightly over 38 MB.
The program needs additional memory for workspace, but even so, handling a data set of this size
should be quite feasible on a current PC, which at the time of writing is likely to have at least 256
MB of RAM.
If RAM is not an issue, there is one further limitation on data size (though it’s very unlikely to
be a binding constraint). That is, variables and observations are indexed by signed integers, and
on a typical PC these will be 32-bit values, capable of representing a maximum positive value of
231 − 1 = 2, 147, 483, 647.
The limits mentioned above apply to gretl’s “native” functionality. There are tighter limits with
regard to two third-party programs that are available as add-ons to gretl for certain sorts of time-
series analysis including seasonal adjustment, namely TRAMO/SEATS and X-12-ARIMA. These pro-
grams employ a fixed-size memory allocation, and can’t handle series of more than 600 observa-
tions.
4.8 Data file collections

If you’re using gretl in a teaching context you may be interested in adding a collection of data files
and/or scripts that relate specifically to your course, in such a way that students can browse and
access them easily.
There are three ways to access such collections of files:
• For data files: select the menu item “File, Open data, Sample file”, or click on the folder icon
on the gretl toolbar.
• For script files: select the menu item “File, Script files, Example scripts”.
When a user selects one of the items:
• The data or script files included in the gretl distribution are automatically shown (this includes
files relating to Ramanathan’s Introductory Econometrics and Greene’s Econometric Analysis).
• The program looks for certain known collections of data files available as optional extras,
for instance the datafiles from various econometrics textbooks (Davidson and MacKinnon,
Gujarati, Stock and Watson, Verbeek, Wooldridge) and the Penn World Table (PWT 5.6). (See
the data page at the gretl website for information on these collections.) If the additional files
are found, they are added to the selection windows.
• The program then searches for valid file collections (not necessarily known in advance) in
these places: the “system” data directory, the system script directory, the user directory,
and all first-level subdirectories of these. For reference, typical values for these directories
are shown in Table 4.1. (Note that PERSONAL is a placeholder that is expanded by Windows,
corresponding to “My Documents” on English-language systems.)
Linux MS Windows
system data dir /usr/share/gretl/data c:\Program Files\gretl\data
system script dir /usr/share/gretl/scripts c:\Program Files\gretl\scripts
user dir $HOME/gretl PERSONAL\gretl
Table 4.1: Typical locations for file collections
Any valid collections will be added to the selection windows. So what constitutes a valid file collec-
tion? This comprises either a set of data files in gretl XML format (with the .gdt suffix) or a set of
script files containing gretl commands (with .inp suffix), in each case accompanied by a “master
file” or catalog. The gretl distribution contains several example catalog files, for instance the file
descriptions in the misc sub-directory of the gretl data directory and ps_descriptions in the
misc sub-directory of the scripts directory.
If you are adding your own collection, data catalogs should be named descriptions and script
catalogs should be be named ps_descriptions. In each case the catalog should be placed (along
with the associated data or script files) in its own specific sub-directory (e.g. /usr/share/gretl/
data/mydata or c:\userdata\gretl\data\mydata).
The catalog files are plain text; if they contain non-ASCII characters they must be encoded as UTF-
8. The syntax of such files is straightforward. Here, for example, are the first few lines of gretl’s
“misc” data catalog:
# Gretl: various illustrative datafiles

"arma","artificial data for ARMA script example"
"ects_nls","Nonlinear least squares example"
"hamilton","Prices and exchange rate, U.S. and Italy"
The first line, which must start with a hash mark, contains a short name, here “Gretl”, which
will appear as the label for this collection’s tab in the data browser window, followed by a colon,
followed by an optional short description of the collection.
Subsequent lines contain two elements, separated by a comma and wrapped in double quotation
marks. The first is a datafile name (leave off the .gdt suffix here) and the second is a short de-
scription of the content of that datafile. There should be one such line for each datafile in the
collection.
A script catalog file looks very similar, except that there are three fields in the file lines: a filename
(without its .inp suffix), a brief description of the econometric point illustrated in the script, and
a brief indication of the nature of the data used. Again, here are the first few lines of the supplied
“misc” script catalog:
# Gretl: various sample scripts

"arma","ARMA modeling","artificial data"
"ects_nls","Nonlinear least squares (Davidson)","artificial data"
"leverage","Influential observations","artificial data"
"longley","Multicollinearity","US employment"
If you want to make your own data collection available to users, these are the steps:
1. Assemble the data, in whatever format is convenient.
2. Convert the data to gretl format and save as gdt files. It is probably easiest to convert the data
by importing them into the program from plain text, CSV, or a spreadsheet format (MS Excel
or Gnumeric) then saving them. You may wish to add descriptions of the individual variables
(the “Variable, Edit attributes” menu item), and add information on the source of the data (the
“Data, Edit info” menu item).
3. Write a descriptions file for the collection using a text editor.
4. Put the datafiles plus the descriptions file in a subdirectory of the gretl data directory (or user
directory).
5. If the collection is to be distributed to other people, package the data files and catalog in some
suitable manner, e.g. as a zipfile.
If you assemble such a collection, and the data are not proprietary, we would encourage you to
submit the collection for packaging as a gretl optional extra.
4.9 Assembling data from multiple sources

In many contexts researchers need to bring together data from multiple source files, and in some
cases these sources are not organized such that the data can simply be “stuck together” by append-
ing rows or columns to a base dataset. In gretl, the join command can be used for this purpose;
this command is discussed in detail in chapter 7.
Chapter 5
Sub-sampling a dataset
5.1 Introduction
Some subtle issues can arise here; this chapter attempts to explain the issues.
A sub-sample may be defined in relation to a full dataset in two different ways: we will refer to these
as “setting” the sample and “restricting” the sample; these methods are discussed in sections 5.2
and 5.3 respectively. In addition section 5.4 discusses some special issues relating to panel data,
and section 5.5 covers resampling with replacement, which is useful in the context of bootstrapping
test statistics.
The following discussion focuses on the command-line approach. But you can also invoke the
methods outlined here via the items under the Sample menu in the GUI program.
5.2 Setting the sample

By “setting” the sample we mean defining a sub-sample simply by means of adjusting the starting
and/or ending point of the current sample range. This is likely to be most relevant for time-series
data. For example, one has quarterly data from 1960:1 to 2003:4, and one wants to run a regression
using only data from the 1970s. A suitable command is then
smpl 1970:1 1979:4
Or one wishes to set aside a block of observations at the end of the data period for out-of-sample
forecasting. In that case one might do
smpl ; 2000:4
where the semicolon is shorthand for “leave the starting observation unchanged”. (The semicolon
may also be used in place of the second parameter, to mean that the ending observation should be
unchanged.) By “unchanged” here, we mean unchanged relative to the last smpl setting, or relative
to the full dataset if no sub-sample has been defined up to this point. For example, after
smpl 1970:1 2003:4

smpl ; 2000:4
the sample range will be 1970:1 to 2000:4.

An incremental or relative form of setting the sample range is also supported. In this case a relative
offset should be given, in the form of a signed integer (or a semicolon to indicate no change), for
both the starting and ending point. For example
smpl +1 ;
will advance the starting observation by one while preserving the ending observation, and
smpl +2 -1
31
Chapter 5. Sub-sampling a dataset 32
will both advance the starting observation by two and retard the ending observation by one.
An important feature of “setting” the sample as described above is that it necessarily results in
the selection of a subset of observations that are contiguous in the full dataset. The structure of
the dataset is therefore unaffected (for example, if it is a quarterly time series before setting the
sample, it remains a quarterly time series afterwards).
5.3 Restricting the sample

By “restricting” the sample we mean selecting observations on the basis of some Boolean (logical)
criterion, or by means of a random number generator. This is likely to be most relevant for cross-
sectional or panel data.
Suppose we have data on a cross-section of individuals, recording their gender, income and other
characteristics. We wish to select for analysis only the women. If we have a male dummy variable
with value 1 for men and 0 for women we could do
smpl male==0 --restrict
to this effect. Or suppose we want to restrict the sample to respondents with incomes over $50,000.
Then we could use
smpl income>50000 --restrict
A question arises: if we issue the two commands above in sequence, what do we end up with in
our sub-sample: all cases with income over 50000, or just women with income over 50000? By
default, the answer is the latter: women with income over 50000. The second restriction augments
the first, or in other words the final restriction is the logical product of the new restriction and any
restriction that is already in place. If you want a new restriction to replace any existing restrictions
you can first recreate the full dataset using
smpl --full
Alternatively, you can add the replace option to the smpl command:
smpl income>50000 --restrict --replace
This option has the effect of automatically re-establishing the full dataset before applying the new
restriction.
Unlike a simple “setting” of the sample, “restricting” the sample may result in selection of non-
contiguous observations from the full data set. It may therefore change the structure of the data
set.
This can be seen in the case of panel data. Say we have a panel of five firms (indexed by the variable
firm) observed in each of several years (identified by the variable year). Then the restriction
smpl year==1995 --restrict
produces a dataset that is not a panel, but a cross-section for the year 1995. Similarly
smpl firm==3 --restrict
produces a time-series dataset for firm number 3.

For these reasons (possible non-contiguity in the observations, possible change in the structure of
the data), gretl acts differently when you “restrict” the sample as opposed to simply “setting” it. In
the case of setting, the program merely records the starting and ending observations and uses these
as parameters to the various commands calling for the estimation of models, the computation of
statistics, and so on. In the case of restriction, the program makes a reduced copy of the dataset
and by default treats this reduced copy as a simple, undated cross-section — but see the further
discussion of panel data in section 5.4.
If you wish to re-impose a time-series interpretation of the reduced dataset you can do so using the
setobs command, or the GUI menu item “Data, Dataset structure”.
The fact that “restricting” the sample results in the creation of a reduced copy of the original
dataset may raise an issue when the dataset is very large. With such a dataset in memory, the
creation of a copy may lead to a situation where the computer runs low on memory for calculating
regression results. You can work around this as follows:
1. Open the full data set, and impose the sample restriction.
2. Save a copy of the reduced data set to disk.
3. Close the full dataset and open the reduced one.
4. Proceed with your analysis.
Random sub-sampling
Besides restricting the sample on some deterministic criterion, it may sometimes be useful (when
working with very large datasets, or perhaps to study the properties of an estimator) to draw a
random sub-sample from the full dataset. This can be done using, for example,
smpl 100 --random
to select 100 cases. If you want the sample to be reproducible, you should set the seed for the
random number generator first, using the set command. This sort of sampling falls under the
“restriction” category: a reduced copy of the dataset is made.
5.4 Panel data

Consider for concreteness the Arellano–Bond dataset supplied with gretl (abdata.gdt). This com-
prises data on 140 firms (n = 140) observed over the years 1976–1984 (T = 9). The dataset is
“nominally balanced” in the sense that that the time-series length is the same for all countries (this
being a requirement for a dataset to count as a panel in gretl), but in fact there are many missing
values (NAs).
You may want to sub-sample such a dataset in either the cross-sectional dimension (limit the sam-
ple to a subset of firms) or the time dimension (e.g. use data from the 1980s only). One way to
sub-sample on firms keys off the notation used by gretl for panel observations. The full data range
is printed as 1:1 (firm 1, period 1) to 140:9 (firm 140, period 9). The effect of
smpl 1:1 80:9
is to limit the sample to the first 80 firms. Note that if you instead tried smpl 1:1 80:4 this would
provoke an error: you cannot use this syntax to sub-sample in the time dimension of the panel.
Alternatively, and perhaps more naturally, you can use the --unit option with the smpl command
to limit the sample in the cross-sectional dimension, as in
smpl 1 80 --unit
The firms in the Arellano–Bond dataset are anonymous, but suppose you had a panel with five
named countries. With such a panel you can inform gretl of the names of the groups using the
setobs command. For example, given
string cstr = "Portugal Italy Ireland Greece Spain"

setobs country cstr --panel-groups
gretl creates a string-valued series named country with group names taken from the variable cstr.
Then, to include only Italy and Spain you could do
smpl country=="Italy" || country=="Spain" --restrict
or to exclude one country,
smpl country!="Ireland" --restrict
Sub-sampling a panel in the time dimension can be done via --restrict. For example, the
Arellano–Bond dataset contains a variable named YEAR that records the year of the observations
and if one wanted to omit the first two years of data one could do
smpl YEAR >= 1978 --restrict
If a dataset does not already incude a suitable variable for this purpose one can use the command
genr time to create a simple 1-based time index.
Another way to sub-sample in the time dimension of a panel starts with a specification of time via
the setobs command, as in
setobs 1 1976 --panel-time
This tells gretl that panel-time is annual (frequency 1), starting in 1976. (In fact this is already done
for abdata.gdt.) Then to restrict the sample range to 1979–1982 you can do
smpl 1979 1982 --time
Note that if you apply a sample restriction that just selects certain units (firms, countries or what-
ever), or selects certain contiguous time-periods — such that n > 1, T > 1 and the time-series length
is still the same across all included units — your sub-sample will still be interpreted by gretl as a
panel.
Unbalancing restrictions
In some cases one wants to sub-sample according to a criterion that “cuts across the grain” of
a panel dataset. For instance, suppose you have a micro dataset with thousands of individuals
observed over several years and you want to restrict the sample to observations on employed
women.
If we simply extracted from the total nT rows of the dataset those that pertain to women who were
employed at time t (t = 1, . . . , T ) we would likely end up with a dataset that doesn’t count as a
panel in gretl (because the specific time-series length, Ti , would differ across individuals). In some
contexts it might be OK that gretl doesn’t take your sub-sample to be a panel, but if you want to
apply panel-specific methods this is a problem. You can solve it by giving the --preserve-panel
option with smpl. For example, supposing your dataset contained dummy variables gender (with
the value 1 coding for women) and employed, you could do
smpl gender==1 && employed==1 --restrict --preserve-panel
What exactly does this do? Well, let’s say the years of your data are 2000, 2005 and 2010, and
that some women were employed in all of those years, giving a maximum Ti value of 3. But in-
dividual 526 is a woman who was employed only in the year 2000 (Ti = 1). The effect of the
--preserve-panel option is then to insert “padding rows” of NAs for the years 2005 and 2010 for
individual 526, and similarly for all individuals with 0 < Ti < 3. Your sub-sample then qualifies as
a panel.
5.5 Resampling and bootstrapping

Given an original data series x, the command
series xr = resample(x)
creates a new series each of whose elements is drawn at random from the elements of x. If the
original series has 100 observations, each element of x is selected with probability 1/100 at each
drawing. Thus the effect is to “shuffle” the elements of x, with the twist that each element of x may
appear more than once, or not at all, in xr.
The primary use of this function is in the construction of bootstrap confidence intervals or p-values.
Here is a simple example. Suppose we estimate a simple regression of y on x via OLS and find that
the slope coefficient has a reported t-ratio of t0 with ν degrees of freedom. A two-tailed p-value
for the null hypothesis that the slope parameter equals zero can then be found using the t(ν)
distribution. Depending on the context, however, we may doubt whether the ratio of coefficient to
standard error truly follows the t(ν) distribution. In that case we could derive a bootstrap p-value
as shown in Listing 5.1.
Under the null hypothesis that the slope with respect to x is zero, y is simply equal to its mean plus
an error term. We simulate y by resampling the residuals from the initial OLS and re-estimate the
model. We repeat this procedure a large number of times, and record the number of cases where
the absolute value of the t-ratio is greater than t0 : the proportion of such cases is our bootstrap
p-value. For a good discussion of simulation-based tests and bootstrapping, see Davidson and
MacKinnon (2004, chapter 4); Davidson and Flachaire (2001) is also instructive.
Listing 5.1: Calculation of bootstrap p-value [Download ▼]
nulldata 50
set seed 54321
series x = normal()
series y = 10 + x + 2*normal()
ols y 0 x
# the reported t-stat
t0 = abs($coeff[2] / $stderr[2])
# save the residuals
series u = $uhat
scalar ybar = mean(y)
# number of replications for bootstrap
scalar B = 1000
scalar tcount = 0
series ysim
loop B
# generate simulated y by resampling
ysim = ybar + resample(u)
ols ysim 0 x --quiet
scalar tsim = abs($coeff[2] / $stderr[2])
tcount += (tsim > t0)
endloop
printf "proportion of cases with |t| > %.3f = %g\n", t0, tcount / B
Chapter 6
Graphs and plots
6.1 Gnuplot graphs

A separate program, gnuplot, is called to generate graphs. Gnuplot is a very full-featured graphing
program with myriad options. It is available from www.gnuplot.info (but note that a suitable copy
of gnuplot is bundled with the packaged versions of gretl for MS Windows and Mac OS X). Gretl
gives you direct access, via a graphical interface, to a subset of gnuplot’s options and it tries to
choose sensible values for you; it also allows you to take complete control over graph details if you
wish.
With a graph displayed, you can click on the graph window for a pop-up menu with the following
options.
• Save as PNG: Save the graph in Portable Network Graphics format (the same format that you
see on screen).
• Save as postscript: Save in encapsulated postscript (EPS) format.
• Save as Windows metafile: Save in Enhanced Metafile (EMF) format.
• Save to session as icon: The graph will appear in iconic form when you select “Icon view” from
the View menu.
• Zoom: Lets you select an area within the graph for closer inspection (not available for all
graphs).
• Print: (Current GTK or MS Windows only) lets you print the graph directly.
• Copy to clipboard: MS Windows only, lets you paste the graph into Windows applications such
as MS Word.
• Edit: Opens a controller for the plot which lets you adjust many aspects of its appearance.
• Close: Closes the graph window.
Displaying data labels

For simple X-Y scatter plots, some further options are available if the dataset includes “case mark-
ers” (that is, labels identifying each observation).1 With a scatter plot displayed, when you move
the mouse pointer over a data point its label is shown on the graph. By default these labels are
transient: they do not appear in the printed or copied version of the graph. They can be removed by
selecting “Clear data labels” from the graph pop-up menu. If you want the labels to be affixed per-
manently (so they will show up when the graph is printed or copied), select the option “Freeze data
labels” from the pop-up menu; “Clear data labels” cancels this operation. The other label-related
option, “All data labels”, requests that case markers be shown for all observations. At present the
display of case markers is disabled for graphs containing more than 250 data points.
1 For an example of such a dataset, see the Ramanathan file data4-10: this contains data on private school enrollment
for the 50 states of the USA plus Washington, DC; the case markers are the two-letter codes for the states.
36
Chapter 6. Graphs and plots 37
GUI plot editor

Selecting the Edit option in the graph popup menu opens an editing dialog box, shown in Figure 6.1.
Notice that there are several tabs, allowing you to adjust many aspects of a graph’s appearance:
font, title, axis scaling, line colors and types, and so on. You can also add lines or descriptive labels
to a graph (under the Lines and Labels tabs). The “Apply” button applies your changes without
closing the editor; “OK” applies the changes and closes the dialog.
Figure 6.1: gretl’s gnuplot controller
Publication-quality graphics: advanced options

The GUI plot editor has two limitations. First, it cannot represent all the myriad options that
gnuplot offers. Users who are sufficiently familiar with gnuplot to know what they’re missing in
the plot editor presumably don’t need much help from gretl, so long as they can get hold of the
gnuplot command file that gretl has put together. Second, even if the plot editor meets your needs,
in terms of fine-tuning the graph you see on screen, a few details may need further work in order
to get optimal results for publication.
Either way, the first step in advanced tweaking of a graph is to get access to the graph command
file.
• In the graph display window, right-click and choose “Save to session as icon”.
• If it’s not already open, open the icon view window — either via the menu item View/Icon view,
or by clicking the “session icon view” button on the main-window toolbar.
• Right-click on the icon representing the newly added graph and select “Edit plot commands”
from the pop-up menu.
• You get a window displaying the plot file (Figure 6.2).
Here are the basic things you can do in this window. Obviously, you can edit the file you just
opened. You can also send it for processing by gnuplot, by clicking the “Execute” (cogwheel) icon
in the toolbar. Or you can use the “Save as” button to save a copy for editing and processing as you
wish.
Figure 6.2: Plot commands editor
Unless you’re a gnuplot expert, most likely you’ll only need to edit a couple of lines at the top of
the file, specifying a driver (plus options) and an output file. We offer here a brief summary of some
points that may be useful.
First, gnuplot’s output mode is set via the command set term followed by the name of a supported
driver (“terminal” in gnuplot parlance) plus various possible options. (The top line in the plot
commands window shows the set term line that gretl used to make a PNG file, commented out.)
The graphic formats that are most suitable for publication are PDF and EPS. These are supported
by the gnuplot term types pdf, pdfcairo and postscript (with the eps option). The pdfcairo
driver has the virtue that is behaves in a very similar manner to the PNG one, the output of which
you see on screen. This is provided by the version of gnuplot that is included in the gretl packages
for MS Windows and Mac OS X; if you’re on Linux it may or may be supported. If pdfcairo is not
available, the pdf terminal may be available; the postscript terminal is almost certainly available.
Besides selecting a term type, if you want to get gnuplot to write the actual output file you need
to append a set output line giving a filename. Here are a few examples of the first two lines you
might type in the window editing your plot commands. We’ll make these more “realistic” shortly.
set term pdfcairo

set output ’mygraph.pdf’
set term pdf

set output ’mygraph.pdf’
set term postscript eps

set output ’mygraph.eps’
There are a couple of things worth remarking here. First, you may want to adjust the size of the
graph, and second you may want to change the font. The default sizes produced by the above
drivers are 5 inches by 3 inches for pdfcairo and pdf, and 5 inches by 3.5 inches for postscript
eps. In each case you can change this by giving a size specification, which takes the form XX,YY
(examples below).
You may ask, why bother changing the size in the gnuplot command file? After all, PDF and EPS are
both vector formats, so the graphs can be scaled at will. True, but a uniform scaling will also affect
the font size, which may end looking wrong. You can get optimal results by experimenting with
the font and size options to gnuplot’s set term command. Here are some examples (comments
follow below).
# pdfcairo, regular size, slightly amended

set term pdfcairo font "Sans,6" size 5in,3.5in
# or small size
set term pdfcairo font "Sans,5" size 3in,2in
# pdf, regular size, slightly amended

set term pdf font "Helvetica,8" size 5in,3.5in
# or small
set term pdf font "Helvetica,6" size 3in,2in
# postscript, regular
set term post eps solid font "Helvetica,16"
# or small
set term post eps solid font "Helvetica,12" size 3in,2in
On the first line we set a sans serif font for pdfcairo at a suitable size for a 5 × 3.5 inch plot
(which you may find looks better than the rather “letterboxy” default of 5 × 3). And on the second
we illustrate what you might do to get a smaller 3 × 2 inch plot. You can specify the plot size in
centimeters if you prefer, as in
set term pdfcairo font "Sans,6" size 6cm,4cm
We then repeat the exercise for the pdf terminal. Notice that here we’re specifying one of the 35
standard PostScript fonts, namely Helvetica. Unlike pdfcairo, the plain pdf driver is unlikely to
be able to find fonts other than these.
In the third pair of lines we illustrate options for the postscript driver (which, as you see, can
be abbreviated as post). Note that here we have added the option solid. Unlike most other
drivers, this one uses dashed lines unless you specify the solid option. Also note that we’ve
(apparently) specified a much larger font in this case. That’s because the eps option in effect tells
the postscript driver to work at half-size (among other things), so we need to double the font
size.
Table 6.1 summarizes the basics for the three drivers we have mentioned.
Terminal default size (inches) suggested font
pdfcairo 5×3 Sans,6

pdf 5×3 Helvetica,8
post eps 5 × 3.5 Helvetica,16
Table 6.1: Drivers for publication-quality graphics
To find out more about gnuplot visit www.gnuplot.info. This site has documentation for the current
version of the program in various formats.
Additional tips
To be written. Line widths, enhanced text. Show a “before and after” example.
6.2 Plotting graphs from scripts

When working with scripts, you may want to have a graph shown onto your display or saved into a
file. In fact, if in your usual workflow you find yourself creating similar graphs over and over again,
you might want to consider the option of writing a script which automates this process for you.
gretl gives you two main tools for doing this: one is a command called gnuplot, whose main use
is to create standard plot quickly. The other one is the plot command block, which has a more
elaborate syntax but offers you more control on output.
The gnuplot command

The gnuplot command is described at length in the Gretl Command Reference and the online help
system. Here, we just summarize its main features: basically, it consists of the gnuplot keyword,
followed by a list of items, telling the command what you want plotted and a list of options, telling
it how you want it plotted.
For example, the line
gnuplot y1 y2 x
will give you a basic XY plot of the two series y1 and y2 on the vertical axis versus the series x on
the horizontal axis. In general, the arguments to the gnuplot command is a list of series, the last
of which goes on the x-axis, while all the other ones go onto the y-axis. By default, the gnuplot
command gives you a scatterplot. If you just have one variable on the y-axis, then gretl will also
draw a the OLS interpolation, if the fit is good enough.2
Several aspects of the behavior described above can be modified. You do this by appending options
to the command. Most options can be broadly grouped in three categories:
1. Plot styles: we support points (the default choice), lines, lines and points together, and im-
pulses (vertical lines).
2. Algorithm for the fitted line: here you can choose between linear, quadratic and cubic inter-
polation, but also more exotic choices, such as semi-log, inverse or loess (non-parametric). Of
course, you can also turn this feature off.
3. Input and output: you can choose whether you want your graph on your computer screen
(and possibly use the in-built graphical widget to further customize it — see above, page 37),
or rather save it to a file. We support several graphical formats, among which PNG and PDF,
to make it easy to incorporate your plots into text documents.
The following script uses the AWM dataset to exemplify some traditional plots in macroeconomics:
open AWM.gdt --quiet
# --- consumption and income, different styles ------------
gnuplot PCR YER

gnuplot PCR YER --output=display
gnuplot PCR YER --output=display --time-series
gnuplot PCR YER --output=display --time-series --with-lines
# --- Phillips’ curve, different fitted lines -------------
gnuplot INFQ URX --output=display
2 The technical condition for this is that the two-tailed p-value for the slope coefficient should be under 10%.
gnuplot INFQ URX --fit=none --output=display

gnuplot INFQ URX --fit=inverse --output=display
gnuplot INFQ URX --fit=loess --output=display
These examples use variables from the “area-wide model” dataset by the European Central Bank
(ECB) which is shipped with gretl in the AWM.gdt file. PCR is aggregate private real consumption
and YER is real GDP. The first command line above thus plots consumption against income as a
kind of Keynesian consumption function. More precisely, it produces a simple scatter plot with
an automatically linear fitted line. If this is executed in the gretl console the plot will be directly
shown in a new window, but if this line is contained in a script then instead a file with the plot
commands will be saved for later execution. The second example line changes this behavior for a
script command and forces the plot to be shown directly.
The third line instead asks for a plot of the two variables as two separate curves against time on
the x-axis. Each observation point is drawn separately with a certain symbol determined by gnuplot
defaults. If you add the option --with-lines the points will be connected with a continuous line
and the symbols omitted.
The second set of example lines above demonstrate how the fitted line in the scatter plot can be
controlled from gretl’s side. The option --fit=none overrides gnuplot’s default to draw a line if it
deems the fit to be “good enough”. The effect of --fit=inverse is to consider the variable on the
y-axis as a function of 1/X instead of X and draw the corresponding hyperbolic branch. For the
workings of a Loess fit (locally-weighted polynomial regression) please refer to the documentation
of the loess function.
For more detail, consult the Gretl Command Reference.
The plot command block

The plot environment is a way to pass information to Gnuplot in a more structured way, so that
customization of basic plots becomes easier. It has the following characteristics:
The block starts with the plot keyword, followed by a required parameter: the name of a list, a
single series or a matrix. This parameter specifies the data to be plotted. The starting line may be
prefixed with the savename <- apparatus to save a plot as an icon in the GUI program. The block
ends with end plot.
Inside the block you have zero or more lines of these types, identified by an initial keyword:
option: specify a single option (details below)
options: specify multiple options on a single line; if more than one option is given on a line, the
options should be separated by spaces.
literal: a command to be passed to gnuplot literally
printf: a printf statement whose result will be passed to gnuplot literally; this allows the use of
string variables without having to resort to @-style string substitution.
The options available are basically those of the current gnuplot command, but with a few dif-
ferences. For one thing you don’t need the leading double-dash in an "option" (or "options") line.
Besides that,
• You can’t use the option --matrix=whatever with plot: that possibility is handled by pro-
viding the name of a matrix on the initial plot line.
• The --input=filename option is not supported: use gnuplot for the case where you’re
supplying the entire plot specification yourself.
• The several options pertaining to the presence and type of a fitted line, are replaced in plot
by a single option fit which requires a parameter. Supported values for the parameter are:
none, linear, quadratic, cubic, inverse, semilog and loess. Example:
option fit=quadratic
As with gnuplot, the default is to show a linear fit in an X-Y scatter if it’s significant at the 10
percent level.
Here’s a simple example, the plot specification from the “bandplot” package, which shows how
to achieve the same result via the gnuplot command and a plot block, respectively — the latter
occupies a few more lines but is clearer
gnuplot 1 2 3 4 --with-lines --matrix=plotmat \

--fit=none --output=display \
{ set linetype 3 lc rgb "#0000ff"; set title "@title"; \
set nokey; set xlabel "@xname"; }
plot plotmat
options with-lines fit=none
literal set linetype 3 lc rgb "#0000ff"
literal set nokey
printf "set title \"%s\"", title
printf "set xlabel \"%s\"", xname
end plot --output=display
Note that --output=display is appended to end plot; also note that if you give a matrix to plot
it’s assumed you want to plot all the columns. In addition, if you give a single series and the dataset
is time series, it’s assumed you want a time-series plot.
Example: Plotting an histogram together with a density

Script 6.1 contains a slightly more elaborate example: here we load the Mroz example dataset and
calculate the log of the individual’s wage. Then, we match the histogram of a discretized version
of the same variable (obtained via the aggregate() function) versus the theoretical density if data
were Gaussian.
There are a few points to note:
• The data for the plot are passed through a matrix in which we set column names via the
cnameset function; those names are then automatically used by the plot environment.
• In this example, we make extensive use of the set literal construct for refining the plot by
passing instruction to gnuplot; the power of gnuplot is impossible to overstate. We encourage
you to visit the “demos” version of gnuplot’s website (http://gnuplot.sourceforge.net/)
and revel in amazement.
• In the plot environment you can use all the quantities you have in your script. This is the
way we calibrate the histogram width (try setting the scalar k in the script to different values).
Note that the printf command has a special meaning inside a plot environment.
• The script displays the plot on your screen. If you want to save it to a file instead, replace
--output=display at the end with --output=filename.
• It’s OK to insert comments in the plot environment; actually, it’s a rather good idea to com-
ment as much as possible (as always)!
The output from the script is shown in Figure 6.3.

Listing 6.1: Plotting the log wage from the Mroz example dataset [Download ▼]
set verbose off

open mroz87.gdt --quiet
series lWW = log(WW)

scalar m = mean(lWW)
scalar s = sd(lWW)
###
### prepare matrix with data for plot
###
# number of valid observations

scalar n = nobs(lWW)
# discretize log wage
scalar k = 4
series disc_lWW = round(lWW*k)/k
# get frequencies
matrix f = aggregate(null, disc_lWW)
# add density
phi = dnorm((f[,1] - m)/s) / (s*k)
# put columns together and add labels
plotmat = f[,2]./n ~ phi ~ f[,1]
strings cnames = defarray("frequency", "density", "log wage")
cnameset(plotmat, cnames)
###
### create plot
###
plot plotmat
# move legend
literal set key outside rmargin
# set line style
literal set linetype 2 dashtype 2 linewidth 2
# set histogram color
literal set linetype 1 lc rgb "#777777"
# set histogram style
literal set style fill solid 0.25 border
# set histogram width
printf "set boxwidth %4.2f\n", 0.5/k
options with-lines=2 with-boxes=1
0.18
frequency
density
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
-2 -1 0 1 2 3
log wage
Figure 6.3: Output from listing 6.1
Listing 6.2: Plotting t densities for varying degrees of freedom [Download ▼]
set verbose off
function string tplot(scalar m)

return sprintf("stud(x,%d) title \"t(%d)\"", m, m)
end function
matrix dfs = {2, 4, 16}
plot
literal set xrange [-4.5:4.5]
literal set yrange [0:0.45]
literal Binv(p,q) = exp(lgamma(p+q)-lgamma(p)-lgamma(q))
literal stud(x,m) = Binv(0.5*m,0.5)/sqrt(m)*(1.0+(x*x)/m)**(-0.5*(m+1.0))
printf "plot %s, %s, %s", tplot(dfs[1]), tplot(dfs[2]), tplot(dfs[3])
Example: Plotting Student’s t densities

The power of the printf statement in a plot block becomes apparent when used jointly with
user-defined functions, as exemplified in Script 6.2.
First we define a user function called tplot, which returns a string with the ingredients to pass
to the gnuplot plot statement, as a function of a scalar parameter (the degrees of freedom in our
case). Next, this function is used within the plot block to plot the appropriate density. Note that
most of the statements to mathematically define the function to plot are outsourced to gnuplot via
the literal command.
The output from the script is shown in Figure 6.4.
0.45
t(2)
t(4)
0.4 t(16)
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
-4 -3 -2 -1 0 1 2 3 4
Figure 6.4: Output from listing 6.2

6.3 Boxplots
These plots (after Tukey and Chambers) display the distribution of a variable. Its shape depends
on a few quantities, defined as follows:
xmin sample minimum

Q1 first quartile
m median
x̄ mean
Q3 third quartile
xmax sample maximum
R = Q3 − Q1 interquartile range
The central box encloses the middle 50 percent of the data, i.e. goes from Q1 to Q3 ; therefore, its
height equals R. A line is drawn across the box at the median m and a “+” sign identifies the mean
x̄.
The length of the “whiskers” depends on the presence of outliers. The top whisker extends from
the top of the box up to a maximum of 1.5 times the interquartile range, but can be shorter if the
sample maximum is lower than that value; that is, it reaches min[xmax , Q3 + 1.5R]. Observations
larger than Q3 + 1.5R, if any, are considered outliers and represented individually via dots.3 The
bottom whisker obeys the same logic, with obvious adjustments. Figure 6.5 provides an example
of all this by using the variable FAMINC from the sample dataset mroz87.
FAMINC
xmax
80000
outliers
60000
40000
Q3 x̄
20000 m
Q1
0 xmin
Figure 6.5: Sample boxplot
In the case of boxplots with confidence intervals, dotted lines show the limits of an approximate 90
3 To give you an intuitive idea, if a variable is normally distributed, the chances of picking an outlier by this definition
are slightly below 0.7%.

percent confidence interval for the median. This is obtained by the bootstrap method, which can
take a while if the data series is very long. For details on constructing boxplots, see the entry for
boxplot in the Gretl Command Reference or use the Help button that appears when you select one
of the boxplot items under the menu item “View, Graph specified vars” in the main gretl window.
Factorized boxplots
A nice feature which is quite useful for data visualization is the conditional, or factorized boxplot.
This type of plot allows you to examine the distribution of a variable conditional on the value of
some discrete factor.
As an example, we’ll use one of the datasets supplied with gretl, that is rac3d, which contains an
example taken from Cameron and Trivedi (2013) on the health conditions of 5190 people. The
script below compares the unconditional (marginal) distribution of the number of illnesses in the
past 2 weeks with the distribution of the same variable, conditional on age classes.
open rac3d.gdt
# unconditional boxplot
boxplot ILLNESS --output=display
# create a discrete variable for age class:
# 0 = below 20, 1 = between 20 and 39, etc
series age_class = floor(AGE/0.2)
# conditional boxplot
boxplot ILLNESS age_class --factorized --output=display
After running the code above, you should see two graphs similar to Figure 6.6. By comparing the
marginal plot to the factorized one, the effect of age on the mean number of illnesses is quite
evident: by joining the green crosses you get what is technically known as the conditional mean
function, or regression function if you prefer.
ILLNESS Distribution of ILLNESS by age_class
5 5
4
4
3
ILLNESS
2
2
1
1
0 0 1 2 3
age_class
Figure 6.6: Conditional and unconditional distribution of illnesses

Chapter 7
Joining data sources
7.1 Introduction
Gretl provides two commands for adding data from file to an existing dataset in the program’s
workspace, namely append and join. The append command, which has been available for a long
time, is relatively simple and is described in the Gretl Command Reference. Here we focus on the
join command, which is much more flexible and sophisticated. This chapter gives an overview
of the functionality of join along with a detailed account of its syntax and options. We provide
several toy examples and discuss one real-world case at length.
First, a note on terminology: in the following we use the terms “left-hand” and “inner” to refer
to the dataset that is already in memory, and the terms “right-hand” and “outer” to refer to the
dataset in the file from which additional data are to be drawn.
Two main features of join are worth emphasizing at the outset:
• “Key” variables can be used to match specific observations (rows) in the inner and outer
datasets, and this match need not be 1 to 1.
• A row filter may be applied to screen out unwanted observations in the outer dataset.
As will be explained below, these features support rather complex concatenation and manipulation
of data from different sources.
A further aspect of join should be noted — one that makes this command particularly useful when
dealing with very large data files. That is, when gretl executes a join operation it does not, in gen-
eral, read into memory the entire content of the right-hand side dataset. Only those columns that
are actually needed for the operation are read in full. This makes join faster and less demanding
of computer memory than the methods available in most other software. On the other hand, gretl’s
asymmetrical treatment of the “inner” and “outer” datasets in join may require some getting used
to, for users of other packages.
7.2 Basic syntax

The minimal invocation of join is
join filename varname
where filename is the name of a data file and varname is the name of a series to be imported.
Only two sorts of data file are supported at present: delimited text files (where the delimiter may
be comma, space, tab or semicolon) and “native” gretl data files (gdt or gdtb). A series named
varname may already be present in the left-hand dataset, but that is not required. The series to be
imported may be numerical or string-valued. For most of the discussion below we assume that just
a single series is imported by each join command, but see section 7.7 for an account of multiple
imports.
The effect of the minimal version of join is this: gretl looks for a data column labeled varname in
the specified file; if such a column is found and the number of observations on the right matches
the number of observations in the current sample range on the left, then the values from the right
are copied into the relevant range of observations on the left. If varname does not already exist
48
Chapter 7. Joining data sources 49
on the left, any observations outside of the current sample are set to NA; if it exists already then
observations outside of the current sample are left unchanged.
The case where you want to rename a series on import is handled by the --data option. This option
has one required argument, the name by which the series is known on the right. At this point we
need to explain something about right-hand variable names (column headings).
Right-hand names
We accept on input arbitrary column heading strings, but if these strings do not qualify as valid
gretl identifiers they are automatically converted, and in the context of join you must use the
converted names. A gretl identifier must start with a letter, contain nothing but (ASCII) letters,
digits and the underscore character, and must not exceed 31 characters. The rules used in name
conversion are:
1. Skip any leading non-letters.
2. Until the 31-character is reached or the input is exhausted: transcribe “legal” characters; skip
“illegal” characters apart from spaces; and replace one or more consecutive spaces with an
underscore, unless the last character transcribed is an underscore in which case space is
skipped.
In the unlikely event that this policy yields an empty string, we replace the original with coln,
where n is replaced by the 1-based index of the column in question among those used in the
join operation. If you are in doubt regarding the converted name of a given column, the function
fixname() can be used as a check: it takes the original string as an argument and returns the
converted name. Examples:
? eval fixname("valid_identifier")
valid_identifier
? eval fixname("12. Some name")
Some_name
Returning to the use of the --data option, suppose we have a column headed "12. Some name"
on the right and wish to import it as x. After figuring how the right-hand name converts, we can do
join foo.csv x --data="Some_name"
No right-hand names?
Some data files have no column headings; they jump straight into the data (and you need to deter-
mine from accompanying documentation what the columns represent). Since gretl expects column
headings, you have to take steps to get the importation right. It is generally a good idea to insert a
suitable header row into the data file. However, if for some reason that’s not practical, you should
give the --no-header option, in which case gretl will name the columns on the right as col1, col2
and so on. If you do not do either of these things you will likely lose the first row of data, since
gretl will attempt to make variable names out of it, as described above.
7.3 Filtering
Rows from the outer dataset can be filtered using the --filter option. The required parameter
for this option is a Boolean condition, that is, an expression which evaluates to non-zero (true,
include the row) or zero (false, skip the row) for each of the outer rows. The filter expression may
include any of the following terms: up to three “right-hand” series (under their converted names as
explained above); scalar or string variables defined “on the left”; any of the operators and functions
available in gretl (including user-defined functions); and numeric or string constants.
Here are a few simple examples of potentially valid filter options (assuming that the specified right-
hand side columns are found):
# 1. relationship between two right-hand variables

--filter="x15<=x17"
# 2. comparison of right-hand variable with constant

--filter="nkids>2"
# 3. comparison of string-valued right-hand variable with string constant

--filter="SEX==\"F\""
# 4. filter on valid values of a right-hand variable

--filter=!missing(income)
# 5. compound condition
--filter="x < 100 && (x > 0 || y > 0)"
Note that if you are comparing against a string constant (as in example 3 above) it is necessary
to put the string in “escaped” double-quotes (each double-quote preceded by a backslash) so the
interpreter knows that F is not supposed to be the name of a variable.
It is safest to enclose the whole filter expression in double quotes, however this is not strictly
required unless the expression contains spaces or the equals sign.
In general, an error is flagged if a missing value is encountered in a series referenced in a filter
expression. This is because the condition then becomes indeterminate; taking example 2 above, if
the nkids value is NA on any given row we are not in a position to evaluate the condition nkids>2.
However, you can use the missing() function — or ok(), which is a shorthand for !missing()— if
you need a filter that keys off the missing or non-missing status of a variable.
7.4 Matching with keys

Things get interesting when we come to key-matching. The purpose of this facility is perhaps best
introduced by example. Suppose that (as with many survey and census-based datasets) we have a
dataset that is composed of two or more related files, each having a different unit of observation;
for example we have a “persons” data file and a “households” data file. Table 7.1 shows a simple,
artificial case. The file people.csv contains a unique identifier for the individuals, pid. The
households file, hholds.csv, contains the unique household identifier hid, which is also present
in the persons file.
As a first example of join with keys, let’s add the household-level variable xh to the persons
dataset:
open people.csv --quiet

join hholds.csv xh --ikey=hid
print --byobs
The basic key option is named ikey; this indicates “inner key”, that is, the key variable found in the
left-hand or inner dataset. By default it is assumed that the right-hand dataset contains a column of
the same name, though as we’ll see below that assumption can be overridden. The join command
above says, find a series named xh in the right-hand dataset and add it to the left-hand one, using
the values of hid to match rows. Looking at the data in Table 7.1 we can see how this should
work. Persons 1 and 2 are both members of household 1, so they should both get values of 1 for
xh; persons 3 and 4 are members of household 2, so that xh = 4; and so on. Note that the order
in which the key values occur on the right-hand side does not matter. The gretl output from the
print command is shown in the lower panel of Table 7.1.
people.csv hholds.csv
pid,hid,gender,age,xp hid,country,xh
1,1,M,50,1 1,US,1
2,1,F,40,2 6,IT,12
3,2,M,30,3 3,UK,6
4,2,F,25,2 4,IT,8
5,3,M,40,3 2,US,4
6,4,F,35,4 5,IT,10
7,4,M,70,3
8,4,F,60,3
9,5,F,20,4
10,6,M,40,4
pid hid xh
1 1 1
2 1 1
3 2 4
4 2 4
5 3 6
6 4 8
7 4 8
8 4 8
9 5 10
10 6 12
Table 7.1: Two linked CSV data files, and the effect of a join
Note that key variables are treated conceptually as integers. If a specified key contains fractional
values these are truncated.
Two extensions of the basic key mechanism are available.
• If the outer dataset contains a relevant key variable but it goes under a different name from
the inner key, you can use the --okey option to specify the outer key. (As with other right-
hand names, this does not have to be a valid gretl identifier.) So, for example, if hholds.csv
contained the hid information, but under the name HHOLD, the join command above could
be modified as
join hholds.csv xh --ikey=hid --okey=HHOLD
• If a single key is not sufficient to generate the matches you want, you can specify a double key
in the form of two series names separated by a comma; in this case the importation of data is
restricted to those rows on which both keys match. The syntax here is, for example
join foo.csv x --ikey=key1,key2
Again, the --okey option may be used if the corresponding right-hand columns are named
differently. The same number of keys must be given on the left and the right, but when a
double key is used and only one of the key names differs on the right, the name that is in
common may be omitted (although the comma separator must be retained). For example, the
second of the following lines is acceptable shorthand for the first:
join foo.csv x --ikey=key1,Lkey2 --okey=key1,Rkey2
join foo.csv x --ikey=key1,Lkey2 --okey=,Rkey2
The number of key-matches

The example shown in Table 7.1 is an instance of a 1 to 1 match: applying the matching criterion
produces exactly one value of the variable xh corresponding to each row of the inner dataset. Three
other possibilities arise:
• Some rows on the left have multiple matches on the right (“1 to n matching”).
• Some rows on the right have multiple matches on the left (“n to 1 matching”).
• Some rows in the inner dataset have no match on the right.
The first case is addressed in detail in the next section; here we discuss the others.
The n to 1 case is straightforward. If a particular key value (or combination of key values) occurs at
each of n > 1 observations on the left but at a single observation on the right, then the right-hand
value is entered at each of the matching slots on the left.
The handling of the case where there’s no match on the right depends on whether the join operation
is adding a new series to the inner dataset or modifying an existing one. If it’s a new series, then
unmatched rows automatically get NA for the imported data. However, if join is pulling in values
for a series already present on the left only matched rows will be updated. In other words we do
not overwite an existing value on the left with NA when there’s no match on the right.
These defaults may not produce the desired results in every case but gretl provides the means to
modify the effect if need be. We will illustrate with two scenarios.
First consider adding a new series recording “number of hours worked” when the inner dataset
contains individuals and the outer file contains data on jobs. If an individual does not appear in
the jobs file, we may want to take her hours worked as implicitly zero rather than NA. In this case
gretl’s misszero() function can be used to turn NA into 0 in the imported series.
Second, consider updating a series via join when the outer file is presumed to contain all available
updated values, such that “no match” should be taken as an implicit NA. In that case we want the
(presumably out-of-date) values on any unmatched rows to be overwritten with NA. Let the series
in question be called x (both on the left and the right) and let the common key be called pid. The
solution is then
join update.csv tmpvar --data=x --ikey=pid

x = tmpvar
As a new variable, tmpvar will get NA for all unmatched rows; we then transcribe its values into
x. In a more complicated case one might use the smpl command to limit the sample range before
assigning tmpvar to x, or use the conditional assignment operator ?:.
One further point: given some missing values in an imported series you may want to know whether
(a) the NAs were explicitly represented in the outer data file or (b) they arose due to “no match”. You
can find this out by using a method described in the following section, namely the count variant of
the aggregation option: this will give you a series with 0 values for all and only unmatched rows.
7.5 Aggregation
In the case of 1 to n matching of rows (n > 1) the user must specify an “aggregation method”; that
is, a method for mapping from n rows down to one. This is handled by the --aggr option which
requires a single argument from the following list:
Code Value returned
count count of matches

avg mean of matching values
sum sum of matching values
min minimum of matching values
max maximum of matching values
seq:i the ith matching value (e.g. seq:2)
min(aux) minimum of matching values of auxiliary variable
max(aux) maximum of matching values of auxiliary variable
Note that the count aggregation method is special, in that there is no need for a “data series” on
the right; the imported series is simply a function of the specified key(s). All the other methods
require that “actual data” are found on the right. Also note that when count is used, the value
returned when no match is found is (as one might expect) zero rather than NA.
The basic use of the seq method is shown above: following the colon you give a positive integer rep-
resenting the (1-based) position of the observation in the sequence of matched rows. Alternatively,
a negative integer can be used to count down from the last match (seq:-1 selects the last match,
seq:-2 the second-last match, and so on). If the specified sequence number is out of bounds for a
given observation this method returns NA.
Referring again to the data in Table 7.1, suppose we want to import data from the persons file into
a dataset established at household level. Here’s an example where we use the individual age data
from people.csv to add the average and minimum age of household members.
open hholds.csv --quiet

join people.csv avgage --ikey=hid --data=age --aggr=avg
join people.csv minage --ikey=hid --data=age --aggr=min
Here’s a further example where we add to the household data the sum of the personal data xp, with
the twist that we apply filters to get the sum specifically for household members under the age of
40, and for women.

join people.csv young_xp --ikey=hid --filter="age<40" --data=xp --aggr=sum
join people.csv female_xp --ikey=hid --filter="gender==\"F\"" --data=xp --aggr=sum
The possibility of using an auxiliary variable with the min and max modes of aggregation gives extra
flexibility. For example, suppose we want for each household the income of its oldest member:

join people.csv oldest_xp --ikey=hid --data=xp --aggr=max(age)
7.6 String-valued key variables

The examples above use numerical variables (household and individual ID numbers) in the match-
ing process. It is also possible to use string-valued variables, in which case a match means that the
string values of the key variables compare equal (with case sensitivity). When using double keys,
you can mix numerical and string keys, but naturally you cannot mix a string variable on the left
(via ikey) with a numerical one on the right (via okey), or vice versa.
Here’s a simple example. Suppose that alongside hholds.csv we have a file countries.csv with
the following content:
country,GDP
UK,100
US,500
IT,150
FR,180
The variable country, which is also found in hholds.csv, is string-valued. We can pull the GDP of
the country in which the household resides into our households dataset with
open hholds.csv -q
join countries.csv GDP --ikey=country
which gives
hid country GDP
1 1 1 500
2 6 2 150
3 3 3 100
4 4 2 150
5 2 1 500
6 5 2 150
7.7 Importing multiple series

The examples given so far have been limited in one respect. While several columns in the outer data
file may be referenced (as keys, or in filtering or aggregation) only one column has actually provided
data—and correspondingly only one series in the inner dataset has been created or modified — per
invocation of join. However, join can handle the importation of several series at once. This
section gives an account of the required syntax along with certain restrictions that apply to the
multiple-import case.
There are two ways to specify more than one series for importation:
1. The varname field in the command can take the form of a space-separated list of names rather
than a single name.
2. Alternatively, you can give the name of an array of strings in place of varname: the elements
of this array should be the names of the series to import.
Here are the limitations:
1. The --data option, which permits the renaming of a series on import, is not available. When
importing multiple series you are obliged to accept their “outer” names, fixed up as described
in section 7.2.
2. While the other join options are available, they necessarily apply uniformly to all the series
imported via a given command. This means that if you want to import several series but using
different keys, filters or aggregation methods you must use a sequence of commands.
Here are a couple of examples of multiple imports.

# open base datafile containing keys

open PUMSdata.gdt
# join using a list of import names

join ss13pnc.csv SCHL WAGP WKHP --ikey=SERIALNO,SPORDER
# using a strings array: may be worthwhile if the array

# will be used for more than one purpose
strings S = defarray("SCHL", "WAGP", "WKHP")
join ss13pnc.csv S --ikey=SERIALNO,SPORDER
7.8 A real-world case

For a real use-case for join with cross-sectional data, we turn to the Bank of Italy’s Survey on House-
hold Income and Wealth (SHIW).1 In ASCII form the 2010 survey results comprise 47 MB of data in
29 files. In this exercise we will draw on five of the SHIW files to construct a replica of the dataset
used in Thomas Mroz’s famous paper (Mroz, 1987) on women’s labor force participation, which
contains data on married women between the age of 30 and 60 along with certain characteristics
of their households and husbands.
Our general strategy is as follows: we create a “core” dataset by opening the file carcom10.csv,
which contains basic data on the individuals. After dropping unwanted individuals (all but married
women), we use the resulting dataset as a base for pulling in further data via the join command.
The complete script to do the job is given in the Appendix to this chapter; here we walk through
the script with comments interspersed. We assume that all the relevant files from the Bank of Italy
survey are contained in a subdirectory called SHIW.
Starting with carcom10.csv, we use the --cols option to the open command to import specific
series, namely NQUEST (household ID number), NORD (sequence number for individuals within each
household), SEX (male = 1, female = 2), PARENT (status in household: 1 = head of household, 2 =
spouse of head, etc.), STACIV (marital status: married = 1), STUDIO (educational level, coded from
1 to 8), ETA (age in years) and ACOM4C (size of town).
open SHIW/carcom10.csv --cols=1,2,3,4,9,10,29,41
We then restrict the sample to married women from 30 to 60 years of age, and additionally restrict
the sample of women to those who are either heads of households or spouses of the head.
smpl SEX==2 && ETA>=30 && ETA<=60 && STACIV==1 --restrict

smpl PARENT<3 --restrict
For compatibility with the Mroz dataset as presented in the gretl data file mroz87.gdt, we rename
the age and education variables as WA and WE respectively, we compute the CIT dummy and finally
we store the reduced base dataset in gretl format.
rename ETA WA
rename STUDIO WE
series CIT = (ACOM4C > 2)
store mroz_rep.gdt
The next step will be to get data on working hours from the jobs file allb1.csv. There’s a com-
plication here. We need the total hours worked over the course of the year (for both the women
1 Details of the survey can be found at http://www.bancaditalia.it/statistiche/indcamp/bilfait/dismicro.
The ASCII (CSV) data files for the 2010 survey are available at http://www.bancaditalia.it/statistiche/indcamp/
bilfait/dismicro/annuale/ascii/ind10_ascii.zip.
and their husbands). This is not available as such, but the variables ORETOT and MESILAV give,
respectively, average hours worked per week and the number of months worked in 2010, each on a
per-job basis. If each person held at most one job over the year we could compute his or her annual
hours as
HRS = ORETOT * 52 * MESILAV/12
However, some people had more than one job, and in this case what we want is the sum of annual
hours across their jobs. We could use join with the seq aggregation method to construct this sum,
but it is probably more straightforward to read the allb1 data, compute the HRS values per job as
shown above, and save the results to a temporary CSV file.
open SHIW/allb1.csv --cols=1,2,8,11 --quiet

series HRS = misszero(ORETOT) * 52 * misszero(MESILAV)/12
store HRS.csv NQUEST NORD HRS
Now we can reopen the base dataset and join the hours variable from HRS.csv. Note that we need
a double key here: the women are uniquely identified by the combination of NQUEST and NORD. We
don’t need an okey specification since these keys go under the same names in the right-hand file.
We define labor force participation, LFP, based on hours.
open mroz_rep.gdt
join HRS.csv WHRS --ikey=NQUEST,NORD --data=HRS --aggr=sum
WHRS = misszero(WHRS)
LFP = WHRS > 0
For reference, here’s how we could have used seq to avoid writing a temporary file:
join SHIW/allb1.csv njobs --ikey=NQUEST,NORD --data=ORETOT --aggr=count

series WHRS = 0
loop i=1..max(njobs)
join SHIW/allb1.csv htmp --ikey=NQUEST,NORD --data=ORETOT --aggr="seq:$i"
join SHIW/allb1.csv mtmp --ikey=NQUEST,NORD --data=MESILAV --aggr="seq:$i"
WHRS += misszero(htmp) * 52 * misszero(mtmp)/12
endloop
To generate the work experience variable, AX, we use the file lavoro.csv: this contains a variable
named ETALAV which records the age at which the person first started work.
join SHIW/lavoro.csv ETALAV --ikey=NQUEST,NORD

series AX = misszero(WA - ETALAV)
We compute the woman’s hourly wage, WW, as the ratio of total employment income to annual
working hours. This requires drawing the series YL (payroll income) and YM (net self-employment
income) from the persons file rper10.csv.
join SHIW/rper10.csv YL YM --ikey=NQUEST,NORD --aggr=sum

series WW = LFP ? (YL + YM)/WHRS : 0
The family’s net disposable income is available as Y in the file rfam10.csv; we import this as
FAMINC.
join SHIW/rfam10.csv FAMINC --ikey=NQUEST --data=Y
Data on number of children are now obtained by applying the count method. For the Mroz repli-
cation we want the number of children under the age of 6, and also the number aged 6 to 18.
join SHIW/carcom10.csv KIDS --ikey=NQUEST --aggr=count --filter="ETA<=18"

join SHIW/carcom10.csv KL6 --ikey=NQUEST --aggr=count --filter=ETA<6
series K618 = KIDS - KL6
We want to add data on the women’s husbands, but how do we find them? To do this we create an
additional inner key which we’ll call H_ID (husband ID), by sub-sampling in turn on the observations
falling into each of two classes: (a) those where the woman is recorded as head of household and
(b) those where the husband has that status. In each case we want the individual ID (NORD) of the
household member whose status is complementary to that of the woman in question. So for case
(a) we subsample using PARENT==1 (head of household) and filter the join using PARENT==2 (spouse
of head); in case (b) we do the converse. We thus construct H_ID piece-wise.
# for women who are household heads

smpl PARENT==1 --restrict --replace
join SHIW/carcom10.csv H_ID --ikey=NQUEST --data=NORD --filter="PARENT==2"
# for women who are not household heads
smpl full
Now we can use our new inner key to retrieve the husbands’ data, matching H_ID on the left with
NORD on the right within each household.
join SHIW/carcom10.csv HA --ikey=NQUEST,H_ID --okey=NQUEST,NORD --data=ETA

join SHIW/carcom10.csv HE --ikey=NQUEST,H_ID --okey=NQUEST,NORD --data=STUDIO
join HRS.csv HHRS --ikey=NQUEST,H_ID --okey=NQUEST,NORD --data=HRS --aggr=sum
HHRS = misszero(HHRS)
The remainder of the script is straightforward and does not require discussion here: we recode
the education variables for compatibility; delete some intermediate series that are not needed any
more; add informative labels; and save the final product. See the Appendix for details.
To compare the results from this dataset with those from the earlier US data used by Mroz, one can
copy the input file heckit.inp (supplied with the gretl package) and substitute mroz_rep.gdt for
mroz87.gdt. It turns out that the results are qualitatively very similar.
7.9 The representation of dates

Up to this point all the data we have considered have been cross-sectional. In the following sections
we discuss data that have a time dimension, and before proceeding it may be useful to say some-
thing about the representation of dates. Gretl takes the ISO 8601 standard as its reference point
but provides mean of converting dates provided in other formats; it also offers a set of calendrical
functions for manipulating dates (isodate, isoconv, epochday and others).
ISO 8601 recognizes two formats for daily dates, “extended” and “basic”. In both formats dates
are given as 4-digit year, 2-digit month and 2-digit day, in that order. In extended format a dash
is inserted between the fields—as in 2013-10-21 or more generally YYYY-MM-DD— while in basic
format the fields are run together (YYYYMMDD). Extended format is more easily parsed by human
readers while basic format is more suitable for computer processing, since one can apply ordinary
arithmetic to compare dates as equal, earlier or later. The standard also recognizes YYYY-MM as
representing year and month, e.g. 2010-11 for November 2010,2 as well as a plain four-digit number
for year alone.
One problem for economists is that the “quarter” is not a period covered by ISO 8601. This could
be presented by YYYY-Q (with only one digit following the dash) but in gretl output we in fact use a
colon, as in 2013:2 for the second quarter of 2013. (For printed output of months gretl also uses
2 The form YYYYMM is not recognized for year and month.
a colon, as in 2013:06. A difficulty with following ISO here is that in a statistical context a string
such as 1980-10 may look more like a subtraction than a date.) Anyway, at present we are more
interested in the parsing of dates on input rather than in what gretl prints. And in that context note
that “excess precision” is acceptable: a month may be represented by its first day (e.g. 2005-05-01
for May, 2005), and a quarter may be represented by its first month and day (2005-07-01 for the
third quarter of 2005).
Some additional points regarding dates will be taken up as they become relevant in practical cases
of joining data.
7.10 Time-series data

Suppose our left-hand dataset is recognized by gretl as time series with a supported frequency
(annual, quarterly, monthly, weekly, daily or hourly). This will be the case if the original data were
read from a file that contained suitable time or date information, or if a time-series interpretation
has been imposed using either the setobs command or its GUI equivalent. Then — apart, perhaps,
from some very special cases—joining additional data is bound to involve matching observations
by time-period. In this case, contrary to the cross-sectional case, the inner dataset has a natural
ordering of which gretl is aware; hence, no “inner key” is required.
If, in addition, the file from data which are to be joined is in native gretl format and contains time-
series information, keys are not needed at all. Three cases can arise: the frequency of the outer
dataset may be the same, lower or higher than that of the inner dataset. In the first two cases
join should work without any special apparatus; lower-frequency values will be repeated for each
high-frequency period. In the third case, however, an aggregation method must be specified: gretl
needs to know how to map higher-frequency data into the existing dataset (by averaging, summing,
or whatever).
If the outer data file is not in native gretl format we need a means of identifying the period of each
observation on the right, an outer key which we’ll call a “time key”. The join command provides
a simple (but limited) default for extracting period information from the outer data file, plus an
option that can be used if the default is not applicable, as follows.
• The default assumptions are: (1) the time key appears in the first column; (2) the heading
of this column is either left blank or is one of obs, date, year, period, observation, or
observation_date (on a case-insensitive comparison); and (3) the time format conforms
to ISO 8601 where applicable (“extended” daily date format YYYY-MM-DD, monthly format
YYYY-MM, or annual format YYYY).
• If dates do not appear in the first column of the outer file, or if the column heading or format
is not as just described, the --tkey option can be used to indicate which column should be
used and/or what format should be assumed.
Setting the time-key column and/or format

The --tkey option requires a parameter holding the name of the column in which the time key
is located and/or a string specifying the format in which dates/times are written in the time-key
column. This parameter should be enclosed in double-quotes. If both elements are present they
should be separated by a comma; if only a format is given it should be preceded by a comma. Some
examples:
--tkey="Period,%m/%d/%Y"
--tkey="Period"
--tkey="obsperiod"
--tkey=",%Ym%m"
The first of these applies if Period is not the first column on the right, and dates are given in the
US format of month, day, year, separated by slashes. The second implies that although Period is
not the first column, the date format is ISO 8601. The third again implies that the date format is
OK; here the name is required even if obsperiod is the first column since this heading is not one
recognized by gretl’s heuristic. The last example implies that dates are in the first column (with
one of the recognized headings), but are given in the non-standard format year, “m”, month.
The date format string should be composed using the codes employed by the POSIX function
strptime; Table 7.2 contains a list of the most relevant codes.3
Code Meaning
%% The % character.
%b The month name according to the current locale, either abbreviated
or in full.
%C The century number (0–99).
%d The day of month (1–31).
%D Equivalent to %m/%d/%y. (This is the American style date, very con-
fusing to non-Americans, especially since %d/%m/%y is widely used in
Europe. The ISO 8601 standard format is %Y-%m-%d.)
%H The hour (0–23).
%j The day number in the year (1–366).
%m The month number (1–12).
%n Arbitrary whitespace.
%q The quarter (1–4).
%w The weekday number (0–6) with Sunday = 0.
%y The year within century (0–99). When a century is not otherwise spec-
ified, values in the range 69–99 refer to years in the twentieth century
(1969–1999); values in the range 00–68 refer to years in the twenty-
first century (2000–2068).
%Y The year, including century (for example, 1991).
Table 7.2: Date format codes
Example: daily stock prices

We show below the first few lines of a file named IBM.csv containing stock-price data for IBM
corporation.
Date,Open,High,Low,Close,Volume,Adj Close
2013-08-02,195.50,195.50,193.22,195.16,3861000,195.16
2013-08-01,196.65,197.17,195.41,195.81,2856900,195.81
2013-07-31,194.49,196.91,194.49,195.04,3810000,195.04
Note that the data are in reverse time-series order — that won’t matter to join, the data can appear
in any order. Also note that the first column is headed Date and holds daily dates as ISO 8601
extended. That means we can pull the data into gretl very easily. In the following fragment we
create a suitably dimensioned empty daily dataset then rely on the default behavior of join with
time-series data to import the closing stock price.
nulldata 500
setobs 5 2012-01-01
join IBM.csv Close
3 The %q code for quarter is not present in strptime; it is added for use with join since quarterly data are common
in macroeconomics.
To make explicit what we’re doing, we could accomplish exactly the same using the --tkey option:
join IBM.csv Close --tkey="Date,%Y-%m-%d"
Example: OECD quarterly data

Table 7.3 shows an excerpt from a CSV file provided by the OECD statistical site (stat.oecd.org)
in response to a request for GDP at constant prices for several countries.4
Frequency,Period,Country,Value,Flags
"Quarterly","Q1-1960","France",463876.148126845,E
"Quarterly","Q1-1960","Germany",768802.119278467,E
"Quarterly","Q1-1960","Italy",414629.791450547,E
"Quarterly","Q1-1960","United Kingdom",578437.090291889,E
...
Table 7.3: Example of CSV file as provided by the OECD statistical website
This is an instance of data in what we call atomic format, that is, a format in which each line of the
outer file contains a single data-point and extracting data mainly requires filtering the appropriate
lines. The outer time key is under the Period heading, and has the format Q<quarter>-<year>.
Assuming that the file in Table 7.3 has the name oecd.csv, the following script reconstructs the
time series of Gross Domestic Product for several countries:
nulldata 220
setobs 4 1960:1
join oecd.csv FRA --tkey="Period,Q%q-%Y" --data=Value --filter="Country==\"France\""

join oecd.csv GER --tkey="Period,Q%q-%Y" --data=Value --filter="Country==\"Germany\""
join oecd.csv ITA --tkey="Period,Q%q-%Y" --data=Value --filter="Country==\"Italy\""
join oecd.csv UK --tkey="Period,Q%q-%Y" --data=Value --filter="Country==\"United Kingdom\""
Note the use of the format codes %q for the quarter and %Y for the 4-digit year. A touch of elegance
could have been added by storing the invariant options to join using the setopt command, as in
setopt join persist --tkey="Period,Q%q-%Y" --data=Value

join oecd.csv FRA --filter="Country==\"France\""
join oecd.csv GER --filter="Country==\"Germany\""
join oecd.csv ITA --filter="Country==\"Italy\""
join oecd.csv UK --filter="Country==\"United Kingdom\""
setopt join clear
If one were importing a large number of such series it might be worth rewriting the sequence of
joins as a loop, as in
4 Retrieved 2013-08-05. The OECD files in fact contain two leading columns with very long labels; these are irrelevant
to the present example and can be omitted without altering the sample script.
strings countries = defarray("France", "Germany", "Italy", "United Kingdom")

strings vnames = defarray("FRA", "GER", "ITA", "UK")
setopt join persist --tkey="Period,Q%q-%Y" --data=Value
loop foreach i countries

vname = vnames[i]
join oecd.csv @vname --filter="Country==\"$i\""
endloop
setopt join clear
7.11 Special handling of time columns

When dealing with straight time series data the tkey mechanism described above should suffice
in almost all cases. In some contexts, however, time enters the picture in a more complex way;
examples include panel data (see section 7.12) and so-called realtime data (see chapter 8). To handle
such cases join provides the --tconvert option. This can be used to select certain columns in
the right-hand data file for special treatment: strings representing dates in these columns will be
converted to numerical values: 8-digit numbers on the pattern YYYYMMDD (ISO basic daily format).
Once dates are in this form it is easy to use them in key-matching or filtering.
By default it is assumed that the strings in the selected columns are in ISO extended format,
YYYY-MM-DD. If that is not the case you can supply a time-format string using the --tconv-fmt
option. The format string should be written using the codes shown in Table 7.2.
Here are some examples:
# select one column for treatment

--tconvert=start_date
# select two columns for treatment

--tconvert="start_date,end_date"
# specify US-style daily date format

--tconv-fmt="%m/%d/%Y"
# specify quarterly date-strings (as in 2004q1)

--tconv-fmt="%Yq%q"
Some points to note:
• If a specified column is not selected for a substantive role in the join operation (as data to be
imported, as a key, or as an auxiliary variable for use in aggregation) the column in question
is not read and so no conversion is carried out.
• If a specified column contains numerical rather than string values, no conversion is carried
out.
• If a string value in a selected column fails parsing using the relevant time format (user-
specified or default), the converted value is NA.
• On successful conversion, the output is always in daily-date form as stated above. If you
specify a monthly or quarterly time format, the converted date is the first day of the month
or quarter.
7.12 Panel data

In section 7.10 we gave an example of reading quarterly GDP data for several countries from an
OECD file. In that context we imported each country’s data as a distinct time-series variable. Now
suppose we want the GDP data in panel format instead (stacked time series). How can we do this
with join?
As a reminder, here’s what the OECD data look like:
Frequency,Period,Country,Value,Flags
and so on. If we have four countries and quarterly observations running from 1960:1 to 2013:2 (T
= 214 quarters) we might set up our panel workspace like this:
scalar N = 4
scalar T = 214
scalar NT = N*T
nulldata NT --preserve
setobs T 1.1 --stacked-time-series
The relevant outer keys are obvious: Country for the country and Period for the time period. Our
task is now to construct matching keys in the inner dataset. This can be done via two panel-specific
options to the setobs command. Let’s work on the time dimension first:
setobs 4 1960:1 --panel-time

series quarter = $obsdate
This variant of setobs allows us to tell gretl that time in our panel is quarterly, starting in the
first quarter of 1960. Having set that, the accessor $obsdate will give us a series of 8-digit dates
representing the first day of each quarter — 19600101, 19600401, 19600701, and so on, repeating
for each country. As we explained in section 7.11, we can use the --tconvert option on the outer
series Period to get exactly matching values (in this case using a format of Q%q-%Y for parsing the
Period values).
Now for the country names:
string cstrs = sprintf("France Germany Italy \"United Kingdom\"")

setobs country cstrs --panel-groups
Here we write into the string cstrs the names of the countries, using escaped double-quotes to
handle the space in “United Kingdom”, then pass this string to setobs with the --panel-groups
option, preceded by the identifier country. This asks gretl to construct a string-valued series
named country, in which each name will repeat T times.
We’re now ready to join. Assuming the OECD file is named oecd.csv we do
join oecd.csv GDP --data=Value \

--ikey=country,quarter --okey=Country,Period \
--tconvert=Period --tconv-fmt="Q%q-%Y"
Other input formats

The OECD file discussed above is in the most convenient format for join, with one data-point per
line. But sometimes we may want to make a panel from a data file structured like this:
# Real GDP
Period,France,Germany,Italy,"United Kingdom"
"Q1-1960",463863,768757,414630,578437
"Q2-1960",465605,782438,420715,572853
"Q3-1960",469091,809484,426894,581252
"Q4-1960",474651,817758,427221,584779
"Q1-1961",482285,826031,442528,594684
...
Call this file side_by_side.csv. Assuming the same initial set-up as above, we can panelize the
data by setting the sample to each country’s time series in turn and importing the relevant column.
The only point to watch here is that the string “United Kingdom”, being a column heading, will
become United_Kingdom on importing (see section 7.2) so we’ll need a slightly different set of
country strings.
strings cstrs = defarray("France", "Germany", "Italy", "United_Kingdom")

setobs country cstrs --panel-groups
loop foreach i cstrs
smpl country=="$i" --restrict --replace
join side_by_side.csv GDP --data=$i \
--ikey=quarter --okey=Period \
--tconvert=Period --tconv-fmt="Q%q-%Y"
endloop
smpl full
If our working dataset and the outer data file are dimensioned such that there are just as many
time-series observations on the right as there are time slots on the left — and the observations
on the right are contiguous, in chronological order, and start on the same date as the working
dataset—we could dispense with the key apparatus and just use the first line of the join command
shown above. However, in general it is safer to use keys to ensure that the data end up in correct
registration.
7.13 Memo: join options

Basic syntax: join filename varname(s) [ options ]
flag effect
--data Give the name of the data column on the right, in case it differs from
varname (7.2); single import only
--filter Specify a condition for filtering data rows (7.3)
--ikey Specify up to two keys for matching data rows (7.4)
--okey Specify outer key name(s) in case they differ the inner ones (7.4)
--aggr Select an aggregation method for 1 to n joins (7.5)
--tkey Specify right-hand time key (7.10)
--tconvert Select outer date columns for conversion to numeric form (7.11)
--tconv-fmt Specify a format for use with tconvert (7.11)
--no-header Treat the first row on the right as data (7.2)
--verbose Report on progress in reading the outer data
Appendix: the full Mroz data script

# start with everybody; get gender, age and a few other variables
# directly while we’re at it
open SHIW/carcom10.csv --cols=1,2,3,4,9,10,29,41
# subsample on married women between the ages of 30 and 60

smpl SEX==2 && ETA>=30 && ETA<=60 && STACIV==1 --restrict
# for simplicity, restrict to heads of households and their spouses
smpl PARENT<3 --restrict
# rename the age and education variables for compatibility; compute

# the "city" dummy and finally save the reduced base dataset
rename ETA WA
rename STUDIO WE
series CIT = (ACOM4C>2)
store mroz_rep.gdt
# make a temp file holding annual hours worked per job

open SHIW/allb1.csv --cols=1,2,8,11 --quiet
series HRS = misszero(ORETOT) * 52 * misszero(MESILAV)/12
store HRS.csv NQUEST NORD HRS
# reopen the base dataset and begin drawing assorted data in

open mroz_rep.gdt
# women’s annual hours (summed across jobs)

join HRS.csv WHRS --ikey=NQUEST,NORD --data=HRS --aggr=sum
WHRS = misszero(WHRS)
# labor force participation

LFP = WHRS > 0
# work experience: ETALAV = age when started first job

join SHIW/lavoro.csv ETALAV --ikey=NQUEST,NORD
series AX = misszero(WA - ETALAV)
# women’s hourly wages

join SHIW/rper10.csv YL YM --ikey=NQUEST,NORD --aggr=sum
series WW = LFP ? (YL + YM)/WHRS : 0
# family income (Y = net disposable income)

join SHIW/rfam10.csv FAMINC --ikey=NQUEST --data=Y
# get data on children using the "count" method

join SHIW/carcom10.csv KIDS --ikey=NQUEST --aggr=count --filter="ETA<=18"
join SHIW/carcom10.csv KL6 --ikey=NQUEST --aggr=count --filter=ETA<6
series K618 = KIDS - KL6
# data on husbands: we first construct an auxiliary inner key for

# husbands, using the little trick of subsampling the inner dataset
#
# for women who are household heads
# for women who are not household heads
smpl full
# add husbands’ data via the newly-added secondary inner key

join SHIW/carcom10.csv HA --ikey=NQUEST,H_ID --okey=NQUEST,NORD --data=ETA
join SHIW/carcom10.csv HE --ikey=NQUEST,H_ID --okey=NQUEST,NORD --data=STUDIO
join HRS.csv HHRS --ikey=NQUEST,H_ID --okey=NQUEST,NORD --data=HRS --aggr=sum
HHRS = misszero(HHRS)
# final cleanup begins
# recode educational attainment as years of education

matrix eduyrs = {0, 5, 8, 11, 13, 16, 18, 21}
series WE = replace(WE, seq(1,8), eduyrs)
series HE = replace(HE, seq(1,8), eduyrs)
# cut some cruft

delete SEX STACIV KIDS YL YM PARENT H_ID ETALAV
# add some labels for the series

setinfo LFP -d "1 if woman worked in 2010"
setinfo WHRS -d "Wife’s hours of work in 2010"
setinfo KL6 -d "Number of children less than 6 years old in household"
setinfo K618 -d "Number of children between ages 6 and 18 in household"
setinfo WA -d "Wife’s age"
setinfo WE -d "Wife’s educational attainment, in years"
setinfo WW -d "Wife’s average hourly earnings, in 2010 euros"
setinfo HHRS -d "Husband’s hours worked in 2010"
setinfo HA -d "Husband’s age"
setinfo HE -d "Husband’s educational attainment, in years"
setinfo FAMINC -d "Family income, in 2010 euros"
setinfo AX -d "Actual years of wife’s previous labor market experience"
setinfo CIT -d "1 if live in large city"
# save the final product

store mroz_rep.gdt
Chapter 8
Realtime data
8.1 Introduction
As of gretl version 1.9.13 the join command (see chapter 7) has been enhanced to deal with so-
called realtime datasets in a straightforward manner. Such datasets contain information on when
the observations in a time series were actually published by the relevant statistical agency and how
they have been revised over time. Probably the most popular sources of such data are the “Alfred”
online database at the St. Louis Fed (http://alfred.stlouisfed.org/) and the OECD’s StatEx-
tracts site, http://stats.oecd.org/. The examples in this chapter deal with files downloaded
from these sources, but should be easy to adapt to files with a slightly different format.
As already stated, join requires a column-oriented plain text file, where the columns may be sepa-
rated by commas, tabs, spaces or semicolons. Alfred and the OECD provide the option to download
realtime data in this format (tab-delimited files from Alfred, comma-delimited from the OECD). If
you have a realtime dataset in a spreadsheet file you must export it to a delimited text file before
using it with join.
Representing revision histories is more complex than just storing a standard time series, because
for each observation period you have in general more than one published value over time, along
with the information on when each of these values were valid or current. Sometimes this is repre-
sented in spreadsheets with two time axes, one for the observation period and another one for the
publication date or “vintage”. The filled cells then form an upper triangle (or a “guillotine blade”
shape, if the publication dates do not reach back far enough to complete the triangle). This format
can be useful for giving a human reader an overview of realtime data, but it is not optimal for
automatic processing; for that purpose “atomic” format is best.
8.2 Atomic format for realtime data

What we are calling atomic format is exactly the format used by Alfred if you choose the option
“Observations by Real-Time Period”, and by the OECD if you select all editions of a series for
download as plain text (CSV).1 A file in this format contains one actual data-point per line, together
with associated metadata. This is illustrated in Table 8.1, where we show the first three lines from
an Alfred file and an OECD file (slightly modified).2
Consider the first data line in the Alfred file: in the observation_date column we find 1960-01-01,
indicating that the data-point on this line, namely 112.0, is an observation or measurement (in this
case, of the US index of industrial production) that refers to the period starting on January 1st
1960. The realtime_start_date value of 1960-02-16 tells us that this value was published on
February 16th 1960, and the realtime_end_date value says that this vintage remained current
through March 15th 1960. On the next day (as we can see from the following line) this data-point
was revised slightly downward to 111.0.
Daily dates in Alfred files are given in ISO extended format, YYYY-MM-DD, but below we describe
how to deal with differently formatted dates. Note that daily dates are appropriate for the last
1 If you choose to download in Excel format from OECD you get a file in the triangular or guillotine format mentioned
above.
2 In the Alfred file we have used commas rather than tabs as the column delimiter; in the OECD example we have
shortened the name in the Variable column.
66
Chapter 8. Realtime data 67
Alfred: monthly US industrial production

observation_date,INDPRO,realtime_start_date,realtime_end_date
1960-01-01,112.0000,1960-02-16,1960-03-15
1960-01-01,111.0000,1960-03-16,1961-10-15
OECD: monthly UK industrial production

Country,Variable,Frequency,Time,Edition,Value,Flags
"United Kingdom","INDPRO","Monthly","Jan-1990","February 1999",100,
"United Kingdom","INDPRO","Monthly","Feb-1990","February 1999",99.3,
Table 8.1: Variant atomic formats for realtime data
two columns, which jointly record the interval over which a given data vintage was current. Daily
dates might, however, be considered overly precise for the first column, since the data period may
well be the year, quarter or month (as it is in fact here). However, following Alfred’s practice it is
acceptable to specify a daily date, indicating the first day of the period, even for non-daily data.3
Compare the first data line of the OECD example. There’s a greater amount of leading metadata,
which is left implicit in the Alfred file. Here Time is the equivalent of Alfred’s observation_date,
and Edition the equivalent of Alfred’s realtime_start_date. So we read that in February 1999
a value of 100 was current for the UK index of industrial production for January 1990, and from
the next line we see that in the same vintage month a value of 99.3 was current for industrial
production in February 1990.
Besides the different names and ordering of the columns, there are a few more substantive differ-
ences between Alfred and OECD files, most of which are irrelevant for join but some of which are
(possibly) relevant.
The first (irrelevant) difference is the ordering of the lines. It appears (though we’re not sure how
consistent this is) that in Alfred files the lines are sorted by observation date first and then by
publication date—so that all revisions of a given observation are grouped together —while OECD
files are sorted first by revision date (Edition) and then by observation date (Time). If we want the
next revision of UK industrial production for January 1990 in the OECD file we have to scan down
several lines until we find
"United Kingdom","INDPRO","Monthly","Jan-1990","March 1999",100,
This difference is basically irrelevant because join can handle the case where the lines appear in
random order, although some operations can be coded more conveniently if we’re able to assume
chronological ordering (either on the Alfred or the OECD pattern, it doesn’t matter).
The second (also irrelevant) difference is that the OECD seems to include periodic “Edition” lines
even when there is no change from the previous value (as illustrated above, where the UK industrial
production index for January 1990 is reported as 100 as of March 1999, the same value that we saw
to be current in February 1999), while Alfred reports a new value only when it differs from what
was previously current.
A third difference lies in the dating of the revisions or editions. As we have seen, Alfred gives
a specific daily date while (in the UK industrial production file at any rate), the OECD just dates
each edition to a month. This is not necessarily relevant for join, but it does raise the question of
whether the OECD might date revisions to a finer granularity in some of their files, in which case
one would have to be on the lookout for a different date format.
The final difference is that Alfred supplies an “end date” for each data vintage while the OECD
3 Notice that this implies that in the Alfred example it is not clear without further information whether the observation
period is the first quarter of 1960, the month January 1960, or the day January 1st 1960. However, we assume that this
information is always available in context.
supplies only a starting date. But there is less to this difference than meets the eye: according to
the Alfred webmaster, “by design, a new vintage must start immediately following (the day after)
the lapse of the old vintage”—so the end date conveys no independent information.4
8.3 More on time-related options

Before we get properly started it is worth saying a little more about the --tkey and --tconvert
options to join (first introduced in section 7.11), as they apply in the case of realtime data.
When you’re working with regular time series data tkey is likely to be useful while tconvert is
unlikely to be applicable (see section 7.10). On the other hand, when you’re working with panel data
tkey is definitely not applicable but tconvert may well be helpful (section 7.12). When working
with realtime data, however, depending on the task in hand both options may be useful. You will
likely need tkey; you may well wish to select at least one column for tconvert treatment; and in
fact you may want to name a given column in both contexts — that is, include the tkey variable
among the tconvert columns.
Why might this make sense? Well, think of the --tconvert option as a “preprocessing” directive:
it asks gretl to convert date strings to numerical values (8-digit ISO basic dates) “at source”, as they
are read from the outer datafile. The --tkey option, on the other hand, singles out a column as
the one to use for matching rows with the inner dataset. So you would want to name a column in
both roles if (a) it should be used for matching periods and also (b) it is desirable to have the values
from this column in numerical form, most likely for use in filtering.
As we have seen, you can supply specific formats in connection with both tkey and tconvert (in
the latter case via the companion option --tconv-fmt) to handle the case where the date strings on
the right are not ISO-friendly at source. This raises the question of how the format specifications
work if a given column is named under both options. Here are the rules that gretl applies:
1. If a format is given with the --tkey option it always applies to the tkey column alone; and
for that column it overrides any format given via the --tconv-fmt option.
2. If a format is given via tconv-fmt it is assumed to apply to all the tconvert columns, unless
this assumption is overriden by rule 1.
8.4 Getting a certain data vintage

The most common application of realtime data is to “travel back in time” and retrieve the data that
were current as of a certain date in the past. This would enable you to replicate a forecast or other
statistical result that could have been produced at that date.
For example, suppose we are interested in a variable of monthly frequency named INDPRO, realtime
data on which is stored in an Alfred file named INDPRO.txt, and we want to check the status quo
as of June 15th 2011.
If we don’t already have a suitable dataset into which to import the INDPRO data, our first steps will
be to create an appropriately dimensioned empty dataset using the nulldata command and then
specify its time-series character via setobs, as in
nulldata 132
setobs 12 2004:01
For convenience we can put the name of our realtime file into a string variable. On Windows this
might look like
4 Email received from Travis May of the Federal Reserve Bank of St. Louis, 2013-10-17. This closes off the possibility
that a given vintage could lapse or expire some time before the next vintage becomes available, hence giving rise to a
“hole” in an Alfred realtime file.
string fname = "C:/Users/yourname/Downloads/INDPRO.txt"
We can then import the data vintage 2011-06-15 using join, arbitrarily choosing the self-explanatory
identifier ip_asof_20110615.
join @fname ip_asof_20110615 --tkey=observation_date --data=INDPRO \

--tconvert="realtime_start_date" \
--filter="realtime_start_date<=20110615" --aggr=max(realtime_start_date)
Here some detailed explanations of the various options are warranted:
• The --tkey option specifies the column which should be treated as holding the observation
period identifiers to be matched against the periods in the current gretl dataset.5 The more
general form of this option is --tkey="colname,format" (note the double quotes here), so
if the dates do not come in standard format, we can tell gretl how to parse them by using
the appropriate conversion specifiers as shown in Table 7.2. For example, here we could have
written --tkey="observation_date,%Y-%m-%d".
• Next, --data=INDPRO tells gretl that we want to retrieve the entries stored in the column
named INDPRO.
• As explained in section 7.11 the --tconvert option selects certain columns in the right-hand
data file for conversion from date strings to 8-digit numbers on the pattern YYYYMMDD. We’ll
need this for the next step, filtering, since the transformation to numerical values makes
it possible to perform basic arithmetic on dates. Note that since date strings in Alfred files
conform to gretl’s default assumption it is not necessary to use the --tconv-fmt option here.
• The --filter option specification in combination with the subsequent --aggr aggregation
treatment is the central piece of our data retrieval; notice how we use the date constant
20110615 in ISO basic form to do numerical comparisons, and how we perform the numerical
max operation on the converted column realtime_start_date. It would also have been
possible to predefine a scalar variable, as in
vintage = 20110615
and then use vintage in the join command instead. Here we tell join that we only want to
extract those publications that (1) already appeared before (and including) June 15th 2011,
and (2) were not yet obsoleted by a newer release.6
As a result, your dataset will now contain a time series named ip_asof_20110615 with the values
that a researcher would have had available on June 15th 2011. Of course, all values for the observa-
tions after June 2011 will be missing (and probably a few before that, too), because they only have
become available later on.
8.5 Getting the n-th release for each observation period

For some purposes it may be useful to retrieve the n-th published value of each observation, where
n is a fixed positive integer, irrespective of when each of these n-th releases was published. Sup-
pose we are interested in the third release, then the relevant join command becomes:
join @fname ip_3rdpub --tkey=observation_date --data=INDPRO --aggr="seq:3"
5 Strictly speaking, using --tkey is unnecessary in this example because we could just have relied on the default,
which is to use the first column in the source file for the periods. However, being explicit is often a good idea.
6 By implementing the second condition through the max aggregation on the realtime_start_date column alone,
without using the realtime_end_date column, we make use of the fact that Alfred files cannot have “holes” as explained
before.
Since we do not need the realtime_start_date information for this retrieval, we have dropped
the --tconvert option here. Note that this formulation assumes that the source file is ordered
chronologically, otherwise using the option --aggr="seq:3", which retrieves the third value from
each sequence of matches, could have yielded a result different from the one intended. However,
this assumption holds for Alfred files and is probably rather safe in general.
The values of the variable imported as ip_3rdpub in this way were published at different dates,
so the variable is effectively a mix of different vintages. Depending on the type of variable, this
may also imply drastic jumps in the values; for example, index numbers are regularly re-based
to different base periods. This problem also carries over to inflation-adjusted economic variables,
where the base period of the price index changes over time. Mixing vintages in general also means
mixing different scales in the output, with which you would have to deal appropriately.7
8.6 Getting the values at a fixed lag after the observation period
New data releases may take place on any day of the month, and as we have seen the specific day
of each release is recorded in realtime files from Alfred. However, if you are working with, say,
monthly or quarterly data you may sometimes want to adjust the granularity of your realtime axis
to a monthly or quarterly frequency. For example, in order to analyse the data revision process for
monthly industrial production you might be interested in the extent of revisions between the data
available two and three months after each observation period.
This is a relatively complicated task and there is more than one way of accomplishing it. Either you
have to make several passes through the outer dataset or you need a sophisticated filter, written
as a hansl function. Either way you will want to make use of some of gretl’s built-in calendrical
functions.
We’ll assume that a suitably dimensioned workspace has been set up as described above. Given
that, the key ingredients of the join are a filtering function which we’ll call rel_ok (for “release is
OK”) and the join command which calls it. Here’s the function:
function series rel_ok (series obsdate, series reldate, int p)

series y_obs, m_obs, y_rel, m_rel
# get year and month from observation date
isoconv(obsdate, &y_obs, &m_obs)
# get year and month from release date
isoconv(reldate, &y_rel, &m_rel)
# find the delta in months
series dm = (12*y_rel + m_rel) - (12*y_obs + m_obs)
# and implement the filter
return dm <= p
end function
And here’s the command:
scalar lag = 3 # choose your fixed lag here

join @fname ip_plus3 --data=INDPRO --tkey=observation_date \
--tconvert="observation_date,realtime_start_date" \
--filter="rel_ok(observation_date, realtime_start_date, lag)" \
--aggr=max(realtime_start_date)
Note that we use --tconvert to convert both the observation date and the realtime start date (or
release date) to 8-digit numerical values. Both of these series are passed to the filter, which uses the
7 Some user-contributed functions may be available that address this issue, but it is beyond our scope here. Another
even more complicated issue in the realtime context is that of “benchmark revisions” applied by statistical agencies,
where the underlying definition or composition of a variable changes on some date, which goes beyond a mere rescaling.
However, this type of structural change is not, in principle, a feature of realtime data alone, but applies to any time-series
data.
built-in function isoconv to extract year and month. We can then calculate dm, the “delta months”
since the observation date, for each release. The filter condition is that this delta should be no
greater than the specified lag, p.8
This filter condition may be satisfied by more than one release, but only the latest of those will
actually be the vintage that was current at the end of the n-th month after the observation period,
so we add the option --aggr=max(realtime_start_date). If instead you want to target the
release at the beginning of the n-th month you would have to use a slightly more complicated filter
function.
An illustration
Figure 8.1 shows four time series for the monthly index of US industrial production from October
2005 to June 2009: the value as of first publication plus the values current 3, 6 and 12 months out
from the observation date.9 From visual inspection it would seem that over much of this period
the Federal reserve was fairly consistently overestimating industrial production at first release and
shortly thereafter, relative to the figure they arrived at with a lag of a year.
The script that produced this Figure is shown in full in Listing 8.1. Note that in this script we are
using a somewhat more efficient version of the rel_ok function shown above, where we pass the
required series arguments in “pointer” form to avoid having to copy them (see chapter 14).
116
114
112
110
108
106
104
102
100
98
First publication
Plus 3 months
96 Plus 6 months
Plus 12 months
94
2006 2007 2008 2009
Figure 8.1: Successive revisions to US industrial production
8.7 Getting the revision history for an observation

For our final example we show how to retrieve the revision history for a given observation (again
using Alfred data on US industrial production). In this exercise we are switching the time axis: the
observation period is a fixed point and time is “vintage time”.
A suitable script is shown in Listing 8.2. We first select an observation to track (January 1970). We
start the clock in the following month, when a data-point for this period was first published, and let
8 The filter is written on the assumption that the lag is expressed in months; on that understanding it could be used
with annual or quarterly data as well as monthly. The idea could be generalized to cover weekly or daily data without
much difficulty.
9 Why not a longer series? Because if we try to extend it in either direction we immediately run into the index re-basing
problem mentioned in section 8.5, with big (staggered) leaps downward in all the series.
Listing 8.1: Retrieving successive realtime lags of US industrial production [Download ▼]
function series rel_ok (series *obsdate, series *reldate, int p)

series y_obs, m_obs, d_obs, y_rel, m_rel, d_rel
isoconv(obsdate, &y_obs, &m_obs, &d_obs)
isoconv(reldate, &y_rel, &m_rel, &d_rel)
series dm = (12*y_rel + m_rel) - (12*y_obs + m_obs)
return dm < p || (dm == p && d_rel <= d_obs)
end function
nulldata 45
setobs 12 2005:10
string fname = "INDPRO.txt"
# initial published values

join @fname firstpub --data=INDPRO --tkey=observation_date \
--tconvert=realtime_start_date --aggr=min(realtime_start_date)
# plus 3 months
join @fname plus3 --data=INDPRO --tkey=observation_date \
--filter="rel_ok(&observation_date, &realtime_start_date, 3)" \
# plus 6 months
# plus 12 months
setinfo firstpub --graph-name="First publication"

setinfo plus3 --graph-name="Plus 3 months"
# set --output=realtime.pdf for PDF

gnuplot firstpub plus3 plus6 plus12 --time --with-lines \
--output=display { set key left bottom; }
it run to the end of the vintage history (in this file, March 2013). Our outer time key is the realtime
start date and we filter on observation date; we name the imported INDPRO values as ip_jan70.
Since it sometimes happens that more than one revision occurs in a given month we need to select
an aggregation method: here we choose to take the last revision in the month.
Recall from section 8.2 that Alfred records a new revision only when the data-point in question
actually changes. This means that our imported series will contain missing values for all months
when no real revision took place. However, we can apply a simple autoregressive rule to fill in the
blanks: each missing value equals the prior non-missing value.
Figure 8.2 displays the revision history. Over this sample period the periodic re-basing of the index
overshadows amendments due to accrual of new information.
Listing 8.2: Retrieving a revision history [Download ▼]
# choose the observation to track here (YYYYMMDD)

scalar target = 19700101
nulldata 518 --preserve

setobs 12 1970:02
join INDPRO.txt ip_jan70 --data=INDPRO --tkey=realtime_start_date \

--tconvert=observation_date \
--filter="observation_date==target" --aggr=seq:-1
ip_jan70 = ok(ip_jan70) ? ip_jan70 : ip_jan70(-1)

gnuplot ip_jan70 --time --with-lines --output=display
180
160
140
120
ip_jan70
100
80
60
40
20
1970 1975 1980 1985 1990 1995 2000 2005 2010
Figure 8.2: Vintages of the index of US industrial production for January 1970
Chapter 9
Temporal disaggregation
9.1 Introduction
This chapter describes and explains the facility for temporal disaggregation in gretl.1 This is im-
plemented by the tdisagg function, which supports three variants of the method of Chow and Lin
(1971); the method of Fernández (1981); and two variants of the method of Denton (1971) as modi-
fied by Cholette (1984). Given the analytical similarities between them, the three Chow–Lin variants
and the Fernández method will be grouped in the discussion below as “Chow–Lin methods”.
The balance of this section provides a gentle introduction to the idea of temporal disaggregation;
experts may wish to skip to the next section.
Basically, temporal disaggregation is the business of taking time-series data observed at some given
frequency (say, annually) and producing a counterpart series at a higher frequency (say, quarterly).
The term “disaggregation” indicates the inverse operation of aggregation, and to understand tem-
poral disaggregation it’s helpful first to understand temporal aggregation. In aggregating a high
frequency series to a lower frequency there are three basic methods, the appropriate method de-
pending on the nature of the data. Here are some illustrative examples.
• GDP: say we have quarterly GDP data and wish to produce an annual series. This is a flow
variable and the annual flow will be the sum of the quarterly values (unless the quarterly
values are annualized, in which case we would aggregate by taking their mean).
• Industrial Production: this takes the form of an index reporting the level of production over
some period relative to that in a base period in which the index is by construction 100. To
aggregate from (for example) monthly to quarterly we should take the average of the monthly
values. (The sum would give a nonsense result.) The same goes for price indices, and also for
ratios of stocks to flows or vice versa (inventory to sales, debt to GDP, capacity utilization).
• Money stock: this is typically reported as an end-of-period value, so in aggregating from

monthly to quarterly we’d take the value from the final month of each quarter. In case a
stock variable is reported as a start-of-period value, the aggregated version would be that of
the first month of the quarter.
A central idea in temporal disaggregation is that the high frequency series must respect both the
given low frequency data and the aggregation method. So for example, whatever numbers we come
up with for quarterly GDP, given an annual series as starting point, our numbers must sum to
the annual total. If money stock is measured at the end of the period then whatever numbers
we come up with for monthly money stock, given quarterly data, the figure for the last month of
the quarter must match that for the quarter as a whole. This is why temporal disaggregation is
sometimes called “benchmarking”: the given low frequency data constitute a benchmark which the
constructed high frequency data must match, in a well defined sense that depends on the nature
of the data.
Colloquially, we might describe temporal disaggregation as “interpolation,” but strictly speaking
interpolation applies only to stock variables. We have a known end-of-quarter value (say), which is
also the value at the end of the last month of the quarter, and we’re trying to figure out what the
1 We are grateful to Tommaso Di Fonzo, Professor of Statistical Science at the University of Padua,for detailed and
precise comments on earlier drafts. Any remaining errors are, of course, our responsibility.
74
Chapter 9. Temporal disaggregation 75
value might have been at the end of months 1 and 2. We’re filling in the blanks, or interpolating.
In the GDP case, however, the procedure is distribution rather than interpolation. We have a given
annual total and we’re trying to figure out how it should be distributed over the quarters. We’re
also doing distribution for variables taking the form of indices or ratios, except in this case we’re
seeking plausible values whose mean equals the given low-frequency value.
While matching the low frequency benchmark is an important constraint, it obviously does not
tie down the high frequency values. That is a job for either regression-based methods such as
Chow–Lin or non-regression methods such as Denton. Details are provided in section 9.7.
9.2 Notation and design

Some notation first: the two main ingredients in temporal disaggregation are
• a T × g matrix Y (holding the series to be disaggregated) and
• a matrix X with k columns and (s · T + m) rows (to aid in the disaggregation).
The idea is that Y contains time series data sampled at some frequency f , while each column
of X contains time series data at a higher frequency, sf . So for each observation Yt we have s
corresponding rows in X. The object is to produce a transformation of Y to frequency sf , with
the help of X (whose columns are typically called “related series” or “indicators” in the temporal
disaggregation literature), via either distribution or interpolation depending on the nature of the
data. For most of this document we will assume that g = 1, or in other words we are performing
temporal disaggregation on a single low-frequency series, but tdisagg supports “batch processing”
of several series and we return to this point in section 9.9.
If the m in (s · T + m) is greater than zero, that implies that there are some “extra” high-frequency
observations available for extrapolation — see section 9.4 for details.
We need to say something more about what goes into X. Under the Denton methods this must be a
single series, generally known as the “preliminary series”.2 For the Chow–Lin methods, X can hold
a combination of deterministic terms (e.g. constant, trend) and stochastic series. Naturally, suitable
candidates for the role of preliminary series or indicator will be variables that are correlated with Y
(and in particular, might be expected to share short-run dynamics with Y). However, it is possible
to carry out disaggregation using deterministic terms only — in the simplest case, with X containing
nothing but a constant. Experts in the field tend to frown on this, with reason: in the absence of
any genuine high-frequency information disaggregation just amounts to a “mechanical” smoothing.
But some people may have a use for such smoothing, and it’s permitted by tdisagg.
We should draw attention to a design decision in tdisagg: we have separated the specification of
indicators in X from certain standard deterministic terms that might be wanted, namely, a constant,
linear trend or quadratic trend. If you want a disaggregation without stochastic indicators, you can
omit (or set to null) the argument corresponding to X. In that case a constant (only) will be
employed automatically, but for the Chow–Lin methods one can adjust the deterministic terms
used via an option named det, described below. In other words the content of X becomes implicit.
See section 9.6 for more detail.
Here’s an important point to note when X is given explicitly: although this matrix may contain
extra observations “at the end” we assume that Y and X are correctly aligned at the start. Take
for example the annual to quarterly case: if the first observation in annual Y is for 1980 then the
first observation in quarterly X must be for the first quarter of 1980. Ensuring this is the user’s
responsibility. We will have some more to say about this in the following section.
2 There’s nothing to stop a user from constructing such a series using several primary series as input—by taking the
first principal component or some other means—but that possibility is beyond our scope here.
9.3 Overview of data handling

The tdisagg function has three basic arguments, representing Y, X and s respectively (plus several
options; see below). The first two arguments can be given either in matrix form as such, or as
“dataset objects”—that is, a series for Y and a series or list of series for X. Or, as mentioned above,
X can be omitted (left implicit). This gives rise to five cases; which is most convenient will depend
on the user’s workflow.
1. Both Y and X are matrices. In this case, the size and periodicity of the currently open dataset
(if any) are irrelevant. If Y has T rows X must, of course, have at least s · T rows; if that
condition is not satisfied an “Invalid argument” error will be flagged.
2. Y is a series (or list) and X a matrix. In this case we assume that the periodicity of the
currently open dataset is the lower one, and T will be taken as equal to $nobs (the number of
observations in the current sample range). Again, X must have at least s · T rows.
3. Y is a matrix and X a series or list. We then assume that the periodicity of the currently open
dataset is the higher one, so that $nobs defines (s · T + m). And Y is supposed to be at the
lower frequency, so its number of rows gives T . We should then be able to find m as $nobs
minus s · T ; if m < 0 an error is flagged.
4. Both Y and X are “dataset objects”. We have two sub-cases here.
(a) If X is a series, or an ordinary list of series, the periodicity of the currently open dataset is
taken to be the higher one. The series (or list) containing Y should hold the appropriate
entries every s elements. For example, if s = 4, Y1 will be taken from the first observation,
Y2 from the fifth, Y3 from the ninth, and so on. In practical terms, series of this sort are
likely to be composed by repeating each element of a low-frequency variable s times.
(b) Alternatively, X could be a “MIDAS list”. The concept of a MIDAS list is fully explained in
chapter 20 but for example, in a quarterly dataset a MIDAS list would be a list of three
series, for the third, second and first month (note the ordering). In this case, the current
periodicity is taken to be the lower one and X will contain one column, corresponding to
the high-frequency representation of the MIDAS list.
5. X is omitted. If Y is given as a matrix it is taken to have T rows. Otherwise the interpretation
is determined heuristically: if the Y series is recognized by gretl as composed of repeated
low-frequency observations, or if a series result is requested, it is taken as having length sT ,
otherwise its length is taken to be T .
In the previous section we flagged the importance of correct alignment of X and Y at the start of the
data; we’re now in a position to say a little more about this. If either X or Y are given in matrix form
alignment is truly the user’s responsibility. But if they are dataset objects gretl can be more helpful.
We automatically advance the start of the sample range to exclude any leading missing values, and
retard the end of the sample ranges for X and Y to exclude trailing missing values (allowing for the
possibility that X may extend beyond Y). In addition we further advance the sample start if this is
required to ensure that the X data begin in the first high-frequency sub-period (e.g. the first quarter
of a year or the first month of a quarter). But please note: when gretl automatically excludes leading
or trailing missing values, intra-sample missing values will still provoke an error.
9.4 Extrapolation
As mentioned above, if X holds covariate data which extend beyond the range of the original series
to be disaggregated then extrapolation is supported. But this is inherently risky, and becomes
riskier the longer the horizon over which it is attempted. In tdisagg extrapolation is by default
limited to one low-frequency period (= s high-frequency periods) beyond the end of the original
data. The user can adjust this behavior via the extmax member of the opts bundle passed to
tdisagg, described in the next section.
9.5 Function signature

The signature of tdisagg is:
matrix tdisagg(Y0, [X], int s, [bundle opts], [bundle results])
where square brackets indicate optional arguments. Note that while the return value is a matrix, if
Y0 contains a single column or series it can be assigned to a series as in
series ys = tdisagg(Y0, ...)
provided it’s of the right length to match the current dataset, or the current sample range. Details
on the arguments follow.
Y0 : Y, as a matrix, series or list.
X (optional): X as a matrix, series or list. This should not contain standard deterministic terms,
since they are handled separately (see det under opts below). If this matrix is omitted, then
disaggregation will be performed using deterministic terms only.
s (int): The temporal expansion factor, for example 3 for quarterly to monthly, 4 for annual to
quarterly or 12 for annual to monthly. We do not support cases such as monthly to weekly or
monthly to daily, where s is not a fixed integer value common to all observations; otherwise,
anything goes.
opts (bundle, optional): a bundle holding additional options. The recognized keys are (in alpha-
betical order):
aggtype (string): Specifies the type of temporal aggregation appropriate to the series in ques-
tion. The value must be one of sum (each low-frequency value is a sum of s high-frequency
values, the default); avg (each low-frequency value is the average of s high frequency val-
ues); or last or first, indicating respectively that each low-frequency value is the last
or first of s high frequency values.
det (int): Relevant only when one of the Chow–Lin methods is selected. This is a numeric
code for the deterministic terms to be included in the regressions: 0 means none; 1,
constant only; 2, constant and linear trend; 3, constant and quadratic trend. The default
is 1.
extmax (int): the maximum number of high-frequency periods over which extrapolation should
be carried out, conditional on the availability of covariate data. A zero value means no
extrapolation; a value of −1 means as many periods as possible; and a positive value
limits extrapolation to the specified number of periods. See section 9.4 for a statement
of the default value.
method (string): Selects the method of disaggregation (see the listing below). Note that the
Chow–Lin methods employ an autoregression coefficient, ρ, which captures the persis-
tence of the target series at the higher frequency and is used in GLS estimation of the
parameters linking X to Y.
• chow-lin (the default) is modeled on the original method proposed by Chow and
Lin. It uses a value of ρ computed as the transformation of a maximum-likelihood
estimate of the low-frequency autocorrelation coefficient.
• chow-lin-mle is equivalent to the method called chow-lin-maxlog in the tempdis-
agg package for R; ρ is estimated by iterated GLS using the loglikelihood as criterion,
as recommended by Bournay and Laroque (1979). (The BFGS algorithm is used inter-
nally).
• chow-lin-ssr is equivalent to the method called chow-lin-minrss-quilis in tem-
pdisagg; ρ is estimated by iterated GLS using the sum of squared GLS residuals as
criterion (L-BFGS is used internally).
• fernandez is basically “Chow–Lin with ρ = 1”. It is suitable if the target series has a
unit root, and is not cointegrated with the indicator series.
• denton-pfd is the proportional first differences variant of Denton, as modified by
Cholette. See Di Fonzo and Marini (2012) for details.
• denton-afd is the additive first differences variant of Denton (again, as modified by
Cholette). In contrast to the Chow–Lin methods, neither Denton procedure involves
regression.
plot (int): If a non-zero value is given, a simple plot is displayed by way of a “sanity check”
on the final series. See section 9.8 for details.
rho (scalar): Relevant only when one of the Chow–Lin methods is selected. If the method
is chow-lin, then rho is treated as a fixed value for ρ, thus enabling the user to by-
pass the default estimation procedure altogether. If the method is chow-lin-mle or
chow-lin-ssr, on the other hand, the supplied ρ value is used to initialize the numeri-
cal optimization algorithm.
verbose (int): Controls the verbosity of Chow–Lin or Fernández output. If 0 (the default)
nothing is printed unless an error occurs; if 1, summary output from the relevant regres-
sion is shown; if 2, in addition output from the optimizer for the iterated GLS procedure
is shown, if applicable.
results (bundle, optional): If present, this argument must be a previously defined bundle. Upon
successful completion of any of the methods other than denton it contains details of the
disaggregation under the following keys:
method : the method employed

rho : the value of ρ used
lnl : loglikelihood (maximized by the chow-lin-mle method)
SSR : sum of squared residuals (minimized by the chow-lin-ssr method)
coeff : the GLS (or OLS) coefficients
stderr : standard errors for the coefficients
If ρ is set to zero—either by specification of the user or because the estimate ρ̂ turned out
to be non-positive—then estimation of the coefficients is via OLS. In that case the lnl and
SSR values are calculated using the OLS residuals (which will be on a different scale from the
weighted residuals in GLS).
9.6 Handling of deterministic terms

It may be helpful to set out clearly, in one place, how deterministic terms are handled by tdisagg.
• If X is given explicitly: No deterministic term is added when the Denton method is used (since
a single preliminary series is wanted) but a constant is added when one of the Chow–Lin
methods is selected. The latter default can be overridden (i.e. the constant removed, or a
trend added) by means of the det entry in the options bundle.
• If X is omitted: By default a constant is used for all methods. Again, for Chow–Lin this can be
overridden by specifying a det value. If for some reason you wanted Denton with just a trend
you would have to supply X containing a trend.
9.7 Some technical details

In this section we provide some technical details on the methods used by tdisagg. We will refer to
the version of Y converted to the high frequency sf as the “final series”.
As regards the Cholette-modified Denton methods, for the proportional first difference variant we
calculate the final series using the solution described by Di Fonzo and Marini (2012), specifically
equation (4) on page 5, and for the additive variant we draw on Di Fonzo (2003), pages 3 and 5 in
particular. Note that these procedures require the construction and inversion of a matrix of order
(s + 1)T . If both s and T are large it can therefore take some time, and be quite demanding of RAM.
As regards Chow–Lin, let ρ0 indicate the rho value passed via the options bundle (if applicable). We
then take these steps:
1. If ρ0 > 0 set ρ = ρ0 and go to step 6 if the method is chow-lin or step 7 otherwise. But if
ρ0 < 0 set ρ0 = 0.
2. Estimate via OLS a regression of Y on CX,3 where C is the appropriate aggregation matrix. Let
β̂OLS equal the coefficients from this regression. If ρ0 = 0 and the method is chow-lin go to
step 8.
3. Calculate the (low frequency) first order autocorrelation of the OLS residuals, ρ̂L . If ρ̂L ≥ 10−6
go to step 4. Otherwise, if the method is chow-lin set ρ = 0 and go to step 8, else set ρ = 0.5
and go to step 7.
4. Refine the positive estimate of ρ̂L via Maximum Likelihood estimation of the AR(1) specifica-
tion as described in Davidson and MacKinnon (2004).
5. If ρ̂L < 0.999, set ρ to the high-frequency counterpart of ρ̂L using the approach given in Chow
and Lin (1971). Otherwise set ρ = 0.999. If the method is chow-lin, go to step 6, otherwise
go to step 7.
6. Perform GLS with the given value of ρ, store the coefficients as β̂GLS and go to step 9.
7. Perform iterated GLS starting from the prior value of ρ, adjusting ρ with the goal of either
maximizing the loglikelihood (method chow-lin-mle) or minimizing the sum of squared GLS
residuals (chow-lin-ssr); set β̂GLS to the final coefficient estimates; and go to step 9.
8. Calculate the final series as Xβ̂OLS + C′ (CC′ )−1 ûOLS , where ûOLS indicates the OLS residuals,
and stop.
9. Calculate the final series as Xβ̂GLS + VC′ (CVC′ )−1 ûGLS , where ûGLS indicates the GLS residuals
and V is the estimated high-frequency covariance matrix.
A few notes on our Chow–Lin algorithm follow.
• One might question the value of performing steps 2 to 5 when the method is one that calls
for GLS iteration (chow-lin-mle or chow-lin-ssr), but our testing indicates that it can be
helpful to have a reasonably good estimate of ρ in hand before embarking on these iterations.
• Conversely, one might wonder why we bother with GLS iterations if we find ρ̂L < 10−6 . But
this allows for the possibility (most likely associated with small sample size) that iteration
will lead to ρ > 0 even when the estimate based on the intial OLS residuals is zero or negative.
• Note that in all cases we are discarding an estimate of ρ < 0 (truncating to 0), which we take
to be standard in this field. In our iterated GLS we achieve this by having the optimizer pick
values x in [−∞, +∞] which are translated to [0, 1] via the logistic CDF, ρ = 1/(1 + exp(−x)).
To be precise, that’s the case with chow-lin-mle. But we find that the chow-lin-ssr method
is liable to overestimate ρ and proceed to values arbitrarily close to 1, resulting in numerical
problems. We therefore bound this method to x in [−20, +6.9], corresponding to ρ values
between near-zero and approximately 0.999.4
3 Strictly
speaking, CX uses only the first sT rows of X if m > 0.
4 It
may be worth noting that the tempdisagg package for R limits both methods to a maximum ρ of 0.999. We find,
however, that the ML method can “look after itself”, and does not require the fixed upper bound short of 1.0.
Temporal disaggregation (chow-lin)

2400
original data
2300 final series * 4
2200
2100
2000
1900
1800
1700
1600
1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965
Figure 9.1: Example output from plot option, showing annual GNP (red) and quarterly final series (blue) using
quarterly industrial production as indicator.
As for the Fernández method, this is quite straightforward. The place of the high-frequency co-
variance matrix V in Chow–Lin is taken by (D′ D)−1 , where D is the approximate first-differencing
matrix, with 1 on the diagonal and −1 on the first sub-diagonal. For efficient computation, however,
we store neither D nor D′ D as such, and do not perform any explicit inversion. The special struc-
ture of (D′ D)−1 makes it possible to produce the effect of pre-multiplication by this matrix with
O(T 2 ) floating-point operations. Estimation of ρ is not an issue since it equals 1 by assumption.
9.8 The plot option

The semantics of this option may be enriched in future but for now it’s a simple boolean switch. The
effect is to produce a time series plot of the final series along with the original low-frequency series,
shown in “step” form. If aggregation is by sum the final series is multiplied by s for comparability
with the original. If the disaggregation has been successful these two series should track closely
together, with the final series showing plausible short-run dynamics. An example is shown in
Figure 9.1.
If there are many observations, the two lines may appear virtually coincident. In that case one
can see what’s going on in more detail by exploiting the “Zoom” functionality of the plot, which is
accessed via the right-click menu in the plot window.
9.9 Multiple low-frequency series

We now return to a point mentioned in section 9.2, namely, that Y may be given as a T × g matrix
with g > 1, or a list of g series. This means that a single call to tdisagg can be used to process
several input series (“batch processing”), in which case the return value is a matrix with (s · T + m)
rows and g columns.
There are some restrictions. First and most obviously, a single call to tdisagg implies a single
selection of “indicators” or “related series” (X) and a single selection of options (aggregation type
of the data, deterministic terms, disaggregation method, and so on). So this possibility will be
relevant only if you have several series that “want the same treatment.” In addition, if g > 1 the
plot and verbose options are ignored and the results bundle is not filled; if you need those
features you should supply a single series or vector in Y.
The advantage of batch processing lies in the spreading of fixed computational cost, leading to
shorter execution time. However, the relative importance of the fixed cost differs substantially
according to the disaggregation method. For the Chow–Lin methods the fixed cost is relatively
small and so little speed-up can be expected, but for the Denton methods it dominates, and (in our
testing) you can process g > 1 series in little more time than it takes to process a single series.
As they say, “Your mileage may vary,” but if you have a large number of series to be disaggregated
via one of the Denton methods you may well find it much faster to use the batch facility of tdisagg.
9.10 Examples
Listing 9.1 shows an example of usage and its output. The data are drawn from the St Louis
Fed; we disaggregate quarterly GDP to monthly with the help of industrial production and payroll
employment, using the default Chow–Lin method.
Several other example scripts are available from http://gretl.sourceforge.net/tdisagg/.
Listing 9.1: Example of tdisagg usage [Download ▼]

Input:
### Traditional Chow-Lin: y is a series with repetition
### and X is a list of series. This corresponds to case 4(a)
### as described in section 9.3 of the documentation above.
###
# ensure that no data are in place

clear
# open gretl’s St Louis Fed database
open fedstl.bin
# import two monthly series
data indpro payems
# import quarterly GDP (values are repeated)
data gdpc1
# restrict sample to complete data

smpl --no-missing
# disaggregate GDP from quarterly to monthly, using

# industrial production and payroll employment as indicators
scalar s = 3
list X = indpro payems
series gdpm = tdisagg(gdpc1, X, s, _(verbose=1, aggtype="sum"))
Output:
Aggregation type sum
GLS estimates (chow-lin) T = 294
Dependent variable: gdpc1
coefficient std. error t-ratio p-value

----------------------------------------------------------
const 312.394 263.372 1.186 0.2365
indpro 10.9158 1.75785 6.210 1.83e-09 ***
payems 0.0242860 0.00171935 14.13 7.39e-35 ***
rho = 0.999, SSR = 51543.9, lnl = -1604.98
Generated series gdpm (ID 4)

Chapter 10
Special functions in genr
10.1 Introduction
The genr command provides a flexible means of defining new variables. At the same time, the
somewhat paradoxical situation is that the “genr” keyword is almost never visible in gretl scripts.
For example, it is not really recommended to write a line such as genr b = 2.5, because there are
the following alternatives:
• scalar b = 2.5, which also invokes the genr apparatus in gretl, but provides explicit type
information about the variable b, which is usually preferable. (gretl’s language hansl is stati-
cally typed, so b cannot switch from scalar to string or matrix, for example.)
• b = 2.5, leaving it to gretl to infer the admissible or most “natural” type for the new object,
which would again be a scalar in this case.
• matrix b = {2.5}: This formulation is required if b is going to be expanded with additional

rows or columns later on. Otherwise, gretl’s static typing would not allow b to be promoted
from scalar to matrix, so it must be a matrix right from the start, even if it is of dimension
1 × 1 initially. (This definition could also be written as matrix b = 2.5, but the more explicit
form is recommended.)
In addition to scalar or matrix, other type keywords that can be used to substitute the generic
genr term are those enumerated in the following chapter 11. In the case of an array the concrete
specification should be used, so one of matrices, strings, lists, bundles.1
Therefore, there’s only a handful of special cases where it is really necessary to use the “genr”
keyword:
• genr time — Creates a time trend variable (1,2,3,. . . ) under the name time. Note that within
an appropriately defined panel dataset this variable honors the panel structure and is a true
time index. (In a cross-sectional dataset, the command will still work and produces the same
result as genr index below, but of course no temporal meaning exists.)
• genr index — Creates an observation variable named index, running from 1 to the sample
size.
• genr unitdum — In the context of panel data, creates a set of dummies for the panel groups
or “units”. These are named du_1, du_2, and so forth. Actually, this particular genr usage is
not strictly necessary, because a list of group dummies can also be obtained as:
series gr = $unit
list groupdums = dummify(gr, NA)
(The NA argument to the dummify function has the effect of not skipping any unit as the
reference group, thus producing the full set of dummies.)
1A recently added advanced datatype is an array of arrays, with the associated type specifier arrays.
82
Chapter 10. Special functions in genr 83
• genr timedum — Again for panel data, creates a set of dummies for the time periods, named
dt_1, dt_2, . . . . And again, a list-producing variant without genr exists, using the special
accessor $obsminor which indexes time in the panel context and can be used as a substitute
for time from above:
series tindex = $obsminor

list timedums = dummify(tindex, NA)
Finally, there also exists genr dummy, which produces a set of seasonal dummies. However, it is
recommended to use the seasonals() function instead, which can also return centered dummies.
The rest of this chapter discusses other special function aspects.
10.2 Cumulative densities and p-values

The two functions cdf and pvalue provide complementary means of examining values from 17
probability distributions (as of July 2021), among which the most important ones: standard normal,
Student’s t, χ 2 , F , gamma, and binomial. The syntax of these functions is set out in the Gretl
Command Reference; here we expand on some subtleties.
The cumulative density function or CDF for a random variable is the integral of the variable’s
density from its lower limit (typically either −∞ or 0) to any specified value x. The p-value (at
least the one-tailed, right-hand p-value as returned by the pvalue function) is the complementary
probability, the integral from x to the upper limit of the distribution, typically +∞.
In principle, therefore, there is no need for two distinct functions: given a CDF value p0 you could
easily find the corresponding p-value as 1 − p0 (or vice versa). In practice, with finite-precision com-
puter arithmetic, the two functions are not redundant. This requires a little explanation. In gretl,
as in most statistical programs, floating point numbers are represented as “doubles” — double-
precision values that typically have a storage size of eight bytes or 64 bits. Since there are only so
many bits available, only so many floating-point numbers can be represented: doubles do not model
the real line. Typically doubles can represent numbers over the range (roughly) ±1.7977 × 10308 ,
but only to about 15 digits of precision.
Suppose you’re interested in the left tail of the χ 2 distribution with 50 degrees of freedom: you’d
like to know the CDF value for x = 0.9. Take a look at the following interactive session:
? scalar p1 = cdf(X, 50, 0.9)

Generated scalar p1 = 8.94977e-35
? scalar p2 = pvalue(X, 50, 0.9)
Generated scalar p2 = 1
? scalar test = 1 - p2
Generated scalar test = 0
The cdf function has produced an accurate value, but the pvalue function gives an answer of 1,
from which it is not possible to retrieve the answer to the CDF question. This may seem surprising
at first, but consider: if the value of p1 above is correct, then the correct value for p2 is 1−8.94977×
10−35 . But there’s no way that value can be represented as a double: that would require over 30
digits of precision.
Of course this is an extreme example. If the x in question is not too far off into one or other tail
of the distribution, the cdf and pvalue functions will in fact produce complementary answers, as
shown below:
? scalar p1 = cdf(X, 50, 30)

Generated scalar p1 = 0.0111648
? scalar p2 = pvalue(X, 50, 30)
Generated scalar p2 = 0.988835
Chapter 10. Special functions in genr 84
? scalar test = 1 - p2
Generated scalar test = 0.0111648
But the moral is that if you want to examine extreme values you should be careful in selecting the
function you need, in the knowledge that values very close to zero can be represented as doubles
while values very close to 1 cannot.
10.3 Retrieving internal variables (dollar accessors)

A very useful feature is to retrieve in a script various values calculated by gretl in the course of
estimating models or testing hypotheses. Since they all start with a literal $ character, they are
called “dollar accessors”. The variables that can be retrieved in this way are listed in the Gretl
Command Referenceor in the built-in function help under the Help menu. The dollar accessors
can be used like other gretl objects in script assignments or statements. Some of those accessors
are actually independent of any estimation or test and describe, for example, the context of the
running gretl program. But here we say a bit more about the special variables $test and $pvalue.
These variables hold, respectively, the value of the last test statistic calculated using an explicit
testing command and the p-value for that test statistic. If no such test has been performed at the
time when these variables are referenced, they will produce the missing value code. Some “explicit
testing commands” that work in this way are as follows (among others): add (joint test for the sig-
nificance of variables added to a model); adf (Augmented Dickey–Fuller test, see below); arch (test
for ARCH); chow (Chow test for a structural break); coeffsum (test for the sum of specified coef-
ficients); coint (Engle-Granger cointegration test); cusum (the Harvey–Collier t-statistic); difftest
(test for a difference of two groups); kpss (KPSS stationarity test, no p-value available); modtest
(see below); meantest (test for difference of means); omit (joint test for the significance of vari-
ables omitted from a model); reset (Ramsey’s RESET); restrict (general linear restriction); runs
(runs test for randomness); and vartest (test for difference of variances). In most cases both a
$test and a $pvalue are stored; the exception is the KPSS test, for which a p-value is not currently
available.
The modtest command (which must follow an estimation command) offers several diagnostic tests;
the particular test performed depends on the option flag provided. Please see the Gretl Command
Reference and for example chapters 32 and 31 of this Guide for details.
An important point to notice about this mechanism is that the internal variables $test and $pvalue
are over-written each time one of the tests listed above is performed. If you want to reference these
values, you must do so at the correct point in the sequence of gretl commands.
Chapter 11
Gretl data types
11.1 Introduction
Gretl offers the following data types:
scalar holds a single numerical value

series holds n numerical values, where n is the number of observations in the current
dataset
matrix holds a rectangular array of numerical values, of any (two) dimensions
list holds the ID numbers of a set of series
string holds an array of characters
bundle holds zero or more objects of various types
array holds zero or more objects of a given type
The “numerical values” mentioned above are all double-precision floating point numbers.
In this chapter we give a run-down of the basic characteristics of each of these types and also
explain their “life cycle” (creation, modification and destruction). The list and matrix types, whose
uses are relatively complex, are discussed at greater length in chapters 15 and 17 respectively.
11.2 Series
We begin with the series type, which is the oldest and in a sense the most basic type in gretl. When
you open a data file in the gretl GUI, what you see in the main window are the ID numbers, names
(and descriptions, if available) of the series read from the file. All the series existing at any point in
a gretl session are of the same length, although some may have missing values. The variables that
can be added via the items under the Add menu in the main window (logs, squares and so on) are
also series.
For a gretl session to contain any series, a common series length must be established. This is
usually achieved by opening a data file, or importing a series from a database, in which case the
length is set by the first import. But one can also use the nulldata command, which takes as it
single argument the desired length, a positive integer.
Each series has these basic attributes: an ID number, a name, and of course n numerical values.
A series may also have a description (which is shown in the main window and is also accessible
via the labels command), a “display name” for use in graphs, a record of the compaction method
used in reducing the variable’s frequency (for time-series data only) and flags marking the variable
as discrete and/or as a numeric encoding of a qualitative characteristic. These attributes can be
edited in the GUI by choosing Edit Attributes (either under the Variable menu or via right-click), or
by means of the setinfo command.
In the context of most commands you are able to reference series by name or by ID number as you
wish. The main exception is the definition or modification of variables via a formula; here you must
use names since ID numbers would get confused with numerical constants.
Note that series ID numbers are always consecutive, and the ID number for a given series will change
if you delete a lower-numbered series. In some contexts, where gretl is liable to get confused by
85
Chapter 11. Gretl data types 86
such changes, deletion of low-numbered series is disallowed.
Discrete series
It is possible to mark variables of the series type as discrete. The meaning and uses of this facility
are explained in chapter 12.
String-valued series
It is generally expected that series in gretl will be “properly numeric” (on a ratio or at least an
ordinal scale), or the sort of numerical indicator variables (0/1 “dummies”) that are traditional
in econometrics. However, there is some support for “string-valued” series — see chapter 16 for
details.
11.3 Scalars
The scalar type is relatively simple: just a convenient named holder for a single numerical value.
Scalars have none of the additional attributes pertaining to series, do not have ID numbers, and
must be referenced by name. A common use of scalar variables is to record information made
available by gretl commands for further processing, as in scalar s2 = $sigmaˆ2 to record the
square of the standard error of the regression following an estimation command such as ols.
You can define and work with scalars in gretl without having any dataset in place.
In the gretl GUI, scalar variables can be inspected and their values edited via the “Icon view” (see
the View menu in the main window).
11.4 Matrices
Matrices in gretl work much as in other mathematical software (e.g. MATLAB, Octave). Like scalars
they have no ID numbers and must be referenced by name, and they can be used without any
dataset in place. Matrix indexing is 1-based: the top-left element of matrix A is A[1,1]. Matrices
are discussed at length in chapter 17; advanced users of gretl will want to study this chapter in
detail.
Matrices have two optional attribute beyond their numerical content: they may have column and/or
row names attached; these are displayed when the matrix is printed. See the cnameset and
rnameset functions for details.
In the gretl GUI, matrices can be inspected, analysed and edited via the Icon view item under the
View menu in the main window: each currently defined matrix is represented by an icon.
11.5 Lists
As with matrices, lists merit an explication of their own (see chapter 15). Briefly, named lists can
(and should!) be used to make command scripts less verbose and repetitious, and more easily
modifiable. Since lists are in fact lists of series ID numbers they can be used only when a dataset is
in place.
In the gretl GUI, named lists can be inspected and edited under the Data menu in the main window,
via the item Define or edit list.
11.6 Strings
String variables may be used for labeling, or for constructing commands. They are discussed in
chapter 15. They must be referenced by name; they can be defined in the absence of a dataset.
Such variables can be created and modified via the command-line in the gretl console or via script;
there is no means of editing them via the gretl GUI.
11.7 Bundles
A bundle is a container or wrapper for various sorts of objects — primarily scalars, matrices,
strings, arrays and bundles. (Yes, a bundle can contain other bundles). Secondarily, series and
lists can be placed in bundles but this is subject to important qualifications noted below.
A bundle takes the form of a hash table or associative array: each item placed in the bundle is
associated with a key which can used to retrieve it subsequently. We begin by explaining the
mechanics of bundles then offer some thoughts on what they are good for.
There are three ways of creating a bundle:
• Just “declare” it, as in

bundle foo
• or define an empty bundle using the null keyword:

bundle foo = null
• or use the defbundle function, which allows you to populate a new bundle (or revise an
existing one), as in
bundle foo = defbundle("x", 13, "mat", I(3), "str", "some string")
The first two formulations are basically equivalent, in that they both create an empty bundle. The
difference is that the second variant may be reused — if a bundle named foo already exists the
effect is to empty it—while the first may only be used once in a given gretl session; it is an error
to attempt to declare a variable that already exists. For details on the defbundle function, see the
Gretl Command Reference or the Function Reference under Help in the GUI program.
To add an object to a bundle you assign to a compound left-hand value: the name of the bundle
followed by the key. Two forms of syntax are acceptable in this context. The recommended syntax
(for most uses) is bundlename.key ; that is, the name of the bundle followed by a dot, then the key.
Both the bundle name and the key must be valid gretl identifiers.1 For example, the statement
foo.matrix1 = m
adds an object called m (presumably a matrix) to bundle foo under the key matrix1. If you wish to
make it explicit that m is supposed to be a matrix you can use the form
matrix foo.matrix1 = m
Alternatively, a bundle key may be given as a string enclosed in square brackets, as in
foo["matrix1"] = m
This syntax offers greater flexibility in that the key string does not have to be a valid identifier (for
example it can include spaces). In addition, when using the square bracket syntax it is possible to
use a string variable to define or access the key in question. For example:
string s = "matrix 1"

foo[s] = m # matrix is added under key "matrix 1"
1 As a reminder: 31 characters maximum, starting with a letter and composed of just letters, numbers or underscore.
To get an item out of a bundle, again use the name of the bundle followed by the key, as in
matrix bm = foo.matrix1
# or using the alternative notation
matrix bm = foo["matrix1"]
# or using a string variable
matrix bm = foo[s]
Note that the key identifying an object within a given bundle is necessarily unique. If you reuse an
existing key in a new assignment, the effect is to replace the object which was previously stored
under the given key. It is not required that the type of the replacement object is the same as that
of the original.
Also note that when you add an object to a bundle, what in fact happens is that the bundle acquires
a copy of the object. The external object retains its own identity and is unaffected if the bundled
object is replaced by another. Consider the following script fragment:
bundle foo
matrix m = I(3)
foo.mykey = m
scalar x = 20
foo.mykey = x
After the above commands are completed bundle foo does not contain a matrix under mykey, but
the original matrix m is still in good health.
To delete an object from a bundle use the delete command, with the bundle/key combination, as
in
delete foo.mykey
This destroys the object associated with mykey and removes the key from the hash table.
To determine whether a bundle contains an object associated with a given key, use the inbundle()
function. This takes two arguments: the name of the bundle and the key string. The value returned
by this function is an integer which codes for the type of the object (0 for no match, 1 for scalar, 2
for series, 3 for matrix, 4 for string, 5 for bundle and 6 for array). The function typestr() may be
used to get the string corresponding to this code. For example:
scalar type = inbundle(foo, x)

if type == 0
print "x: no such object"
else
printf "x is of type %s\n", typestr(type)
endif
Besides adding, accessing, replacing and deleting individual items, the other operations that are
supported for bundles are union, printing and deletion. As regards union, if bundles b1 and b2 are
defined you can say
bundle b3 = b1 + b2
to create a new bundle that is the union of the two others. The algorithm is: create a new bundle
that is a copy of b1, then add any items from b2 whose keys are not already present in the new
bundle. (This means that bundle union is not commutative if the bundles have one or more key
strings in common.)
If b is a bundle and you say print b, you get a listing of the bundle’s keys along with the types of
the corresponding objects, as in
? print b
bundle b:
x (scalar)
mat (matrix)
inside (bundle)
Note that in the example above the bundle b nests a bundle named inside. If you want to see
what’s inside nested bundles (with a single command) you can append the --tree option to the
print command.
Series and lists as bundle members

It is possible to add both series and lists to a bundle, as in
open data4-10
list X = const CATHOL INCOME
bundle b
b.y = ENROLL
b.X = X
eval b.y
eval b.X
However, it is important to bear in mind the following limitations.
• A series, as such, is inherently a member of a dataset, and a bundle can “survive” the replace-
ment or destruction of the dataset from which a series was added. It may then be impossible
(or, even if possible, meaningless) to extract a bundled series as a series. However it’s always
possible to retrieve the values of the series in the form of a matrix (column vector).
• In gretl commands that call for series arguments you cannot give a bundled series without
first extracting it. In the little example above the series ENROLL was added to bundle b under
the key y, but b.y is not itself a series (member of a dataset), it’s just an anonymous array
of values. It therefore cannot be given as, say, the dependent variable in a call to gretl’s ols
command.
• A gretl list is just an array of ID numbers of series in a given dataset, a “macro” if you like.
So as with series, there’s no guarantee that a bundled list can be extracted as a list (though it
can always be extracted as a row vector).
The points made above are illustrated in Listing 11.1. In “Case 1” we open a little dataset with just
14 cross-sectional observations and put a series into a bundle. We then open a time-series dataset
with 64 observations, while preserving the bundle, and extract the bundled series. This instance is
legal, since the stored series does not overflow the length of the new dataset (it gets written into
the first 14 observations), but it’s probably not meaningful. It’s up to the user to decide if such
operations make sense.
In “Case 2” a similar sequence of statements leads to an error (trapped by catch) because this time
the stored series will not fit into the new dataset. We can nonetheless grab the data as a vector.
In “Case 3” we put a list of three series into a bundle. This does not put any actual data values into
the bundle, just the ID numbers of the specified series, which happen to be 4, 5 and 6. We then
switch to a dataset that contains just 4 series, so the list cannot be extracted as such (IDs 5 and 6
are out of bounds). Once again, however, we can retrieve the ID numbers in matrix form if we want.
In some cases putting a gretl list as such into a bundle may be appropriate, but in others you are
better off adding the content of the list, in matrix form, as in
open data4-10
list X = const CATHOL INCOME
bundle b
matrix b.X = {X}
In this case we’re adding a matrix with three columns and as many rows as there are in the dataset;
we have the actual data, not just a reference to the data that might “go bad”. See chapter 17 for
more on this.
Listing 11.1: Series and lists in bundles [Download ▼]
# Case 1: store and retrieve series, OK?

open data4-1
bundle b
series b.x = sqft
open data9-7 --preserve
series x = b.x
print x --byobs
# Case 2: store and retrieve series: gives an error,

# but the data can be retrieved in matrix form
open data9-7
bundle b
series b.x = QNC
catch series x = b.x # wrong, won’t fit!
if $error
matrix mx = b.x
print mx
else
print x
endif
# Case 3: store and retrieve list: gives an error,

# but the ID numbers in the list can be retrieved
# as a row vector
open data9-7
list L = PRIME UNEMP STOCK
bundle b
list b.L = L
catch list L = b.L
if $error
matrix mL = b.L
print mL # prints "4 5 6"
endif
What are bundles good for?

Bundles are unlikely to be of interest in the context of standalone gretl scripts, but they can be
very useful in the context of complex function packages where a good deal of information has to
be passed around between the component functions (see Cottrell and Lucchetti, 2016). Instead of
using a lengthy list of individual arguments, function A can bundle up the required data and pass
it to functions B and C, where relevant information can be extracted via a mnemonic key.
In this context bundles should be passed in “pointer” form (see chapter 14) as illustrated in the fol-
lowing trivial example, where a bundle is created at one level then filled out by a separate function.
# modification of bundle (pointer) by user function
function void fill_out_bundle (bundle *b)

b.mat = I(3)
b.str = "foo"
b.x = 32
end function
bundle my_bundle
fill_out_bundle(&my_bundle)
The bundle type can also be used to advantage as the return value from a packaged function, in
cases where a package writer wants to give the user the option of accessing various results. In
the gretl GUI, function packages that return a bundle are treated specially: the output window that
displays the printed results acquires a menu showing the bundled items (their names and types),
from which the user can save items of interest. For example, a function package that estimates a
model might return a bundle containing a vector of parameter estimates, a residual series and a
covariance matrix for the parameter estimates, among other possibilities.
As a refinement to support the use of bundles as a function return type, the setnote function can
be used to add a brief explanatory note to a bundled item — such notes will then be shown in the
GUI menu. This function takes three arguments: the name of a bundle, a key string, and the note.
For example
setnote(b, "vcv", "covariance matrix")
After this, the object under the key vcv in bundle b will be shown as “covariance matrix” in a GUI
menu.
11.8 Arrays
The gretl array type is intended for scripting use. Arrays have no GUI representation and they’re
unlikely to acquire one.2
A gretl array is, as you might expect, a container which can hold zero or more objects of a certain
type, indexed by consecutive integers starting at 1. It is one-dimensional. This type is implemented
by a quite “generic” back-end. The types of object that can be put into arrays are strings, matrices,
lists, bundles and arrays.3
Of gretl’s “primary” types, then, neither scalars nor series are supported by the array mechanism.
There would be little point in supporting arrays of scalars as such since the matrix type already
plays that role, and more flexibly. As for series, they have a special status as elements of a dataset
(which is in a sense an “array of series” already) and in addition we have the list type which already
functions as a sort of array for subsets of the series in a dataset.
Creating an array
An array can be brought into existence in any of four ways: bare declaration, assignment from null,
or using one of the functions array() or defarray(). In each case one of the specific type-words
strings, matrices, lists, bundles or arrays must be used. Here are some examples:
# declare an empty array of strings

strings S
2 However, it’s possible to save arrays “invisibly” in the context of a GUI session, by virtue of the fact that they can be
packed into bundles (see below), and bundles can be saved as part of a “session”.
3 It was not possible to nest arrays prior to version 2019d of gretl.
# make an empty array of matrices

matrices M = null
# make an array with space for four bundles
bundles B = array(4)
# make an array with three specified strings
strings P = defarray("foo", "bar", "baz")
The “bare declaration” form and the “= null” form have the same effect of creating an empty array,
but the second can be used in contexts where bare declaration is not allowed (and it can also be
used to destroy the content of an existing array and reduce it to size zero). The array() function
expects a positive integer argument and can be used to create an array of pre-given size; in this
case the elements are initialized appropriately as empty strings, null matrices, empty lists, empty
bundles or empty arrays. The defarray() function takes a variable number of arguments (one or
more), each of which may be the name of a variable of the appropriate type or an expression which
evaluates to an object of the appropriate type.
Setting and getting elements

There are two ways to set the value of an array element: you can set a particular element using the
array index, or you can append an element using the += operator:
# first case
strings S = array(3)
S[2] = "string the second"
# alternative
matrices M = null
M += mnormal(T,k)
In the first method the index must (of course) be within bounds; that is, greater than zero and
no greater than the current length of the array. When the second method is used it automatically
extends the length of the array by 1.
To get hold of an element, the array index must be used:
# for S an array of strings

string s = S[5]
# for M an array of matrices
printf "\n%#12.5g\n", M[1]
Operations on whole arrays

Three operators are applicable to whole arrays, but only one to arrays of arbitrary type (the other
two being restricted to arrays of strings). The generally available operation is appending. You can
do, for example
# for M1 and M2 both arrays of matrices

matrices BigM = M1 + M2
# or if you wish to augment M1
M1 += M2
In each case the result is an array of matrices whose length is the sum of the lengths of M1 and
M2 —and similarly for the other supported types.
The operators specific to strings are union, via ||, and intersection, via &&. Given the following
code, for S1 and S2 both arrays of strings,
strings Su = S1 || S2
strings Si = S1 && S2
the array Su will contain all the strings in S1 plus any in S2 that are not in S1, while Si will contain
all and only the strings that appear in both S1 and S2.
Arrays as function arguments

One can write hansl functions that take as arguments any of the array types, and it is possible to
pass arrays as function arguments in “pointerized” form. In addition hansl functions may return
any of the array types. Here is a trivial example for strings:
function void printstrings (strings *S)

loop i=1..nelem(S)
printf "element %d: ’%s’\n", i, S[i]
endloop
end function
function strings mkstrs (int n)

strings S = array(n)
loop i=1..n
S[i] = sprintf("member %d", i)
endloop
return S
end function
strings Foo = mkstrs(5)

print Foo
printstrings(&Foo)
A couple of points are worth noting here. First, the nelem() function works to give the number of
elements in any of the “container” types (lists, arrays, bundles, matrices). Second, if you do “print
Foo” for Foo an array, you’ll see something like:
? print Foo
Array of strings, length 5
Nesting arrays
While gretl’s array structure is in itself one-dimensional you can add extra dimensions by nesting.
For example, the code below creates an array holding n arrays of m bundles.
arrays BB = array(n)
loop i=1..n
bundles BB[i] = array(m)
endloop
The syntax for setting or accessing any of the n × m bundles (or their members) is then on the
following pattern:
BB[i][j].m = I(3)
eval BB[i][j]
eval BB[i][j].m # or eval BB[i][j]["m"]
where the respective array subscripts are each put into square brackets.
The elements of an array of arrays must (obviously) all be arrays, but it’s not required that they
have a common content-type. For example, the following code creates an array holding an array of
matrices plus an array of strings.
arrays AA = array(2)
matrices AA[1] = array(3)
strings AA[2] = array(3)
Arrays and bundles

As mentioned, the bundle type is supported by the array mechanism. In addition, arrays (of what-
ever type) can be put into bundles:
matrices M = array(8)
# set values of M[i] here...
bundle b
b.M = M
The mutual “packability” of bundles and arrays means that it’s possible to go quite far down the
rabbit-hole. . . users are advised not to get carried away.
11.9 The life cycle of gretl objects

Creation
The most basic way to create a new variable of any type is by declaration, where one states the type
followed by the name of the variable to create, as in
scalar x
series y
matrix A
and so forth. In that case the object in question is given a default initialization, as follows: a new
scalar has value NA (missing); a new series is filled with NAs; a new matrix is null (zero rows and
columns); a new string is empty; a new list has no members, new bundle and new arrays are empty.
Declaration can be supplemented by a definite initialization, as in
scalar x = pi
series y = log(x)
matrix A = zeros(10,4)
The type of a new variable can be left implicit, as in
x = y/100
z = 3.5
Here the type of x will be determined automatically depending on the context. If y is a scalar,
a series or a matrix x will inherit y’s type (otherwise an error will be generated, since division is
applicable to these types only). The new variable z will “naturally” be of scalar type.
In general, however, we recommend that you state the type of a new variable explicitly. This makes
the intent clearer to a reader of the script and also guards against errors that might otherwise be
difficult to understand (i.e. a certain variable turns out to be of the wrong type for some subsequent
calculation, but you don’t notice at first because you didn’t say what type you wanted). Exceptions
to this rule might reasonably be granted for clear and simple cases where there’s little possibility
of confusion.
Modification
Typically, the values of variables of all types are modified by assignment, using the = operator with
the name of the variable on the left and a suitable value or formula on the right:
z = normal()
x = 100 * log(y) - log(y(-1))
M = qform(a, X)
By a “suitable” value we mean one that is conformable for the type in question. A gretl variable
acquires its type when it is first created and this cannot be changed via assignment; for example, if
you have a matrix A and later want a string A, you will have to delete the matrix first.
☞ One point to watch out for in gretl scripting is type conflicts having to do with the names of series brought
in from a data file. For example, in setting up a command loop (see chapter 13) it is very common to call
the loop index i. Now a loop index is a scalar (typically incremented each time round the loop). If you open
a data file that happens to contain a series named i you will get a type error (“Types not conformable for
operation”) when you try to use i as a loop index.
Although the type of an existing variable cannot be changed on the fly, gretl nonetheless tries to be
as “understanding” as possible. For example if x is an existing series and you say
x = 100
gretl will give the series a constant value of 100 rather than complaining that you are trying to
assign a scalar to a series. This issue is particularly relevant for the matrix type — see chapter 17
for details.
Besides using the regular assignment operator you also have the option of using an “inflected”
equals sign, as in the C programming language. This is shorthand for the case where the new value
of the variable is a function of the old value. For example,
x += 100 # in longhand: x = x + 100

x *= 100 # in longhand: x = x * 100
For scalar variables you can use a more condensed shorthand for simple increment or decrement
by 1, namely trailing ++ or -- respectively:
x = 100
x-- # x now equals 99
x++ # x now equals 100
In the case of objects holding more than one value — series, matrices and bundles — you can mod-
ify particular values within the object using an expression within square brackets to identify the
elements to access. We have discussed this above for the bundle type and chapter 17 goes into
details for matrices. As for series, there are two ways to specify particular values for modification:
you can use a simple 1-based index, or if the dataset is a time series or panel (or if it has marker
strings that identify the observations) you can use an appropriate observation string. Such strings
are displayed by gretl when you print data with the --byobs flag. Examples:
x[13] = 100 # simple index: the 13th observation

x[1995:4] = 100 # date: quarterly time series
x[2003:08] = 100 # date: monthly time series
x["AZ"] = 100 # the observation with marker string "AZ"
x[3:15] = 100 # panel: the 15th observation for the 3rd unit
Note that with quarterly or monthly time series there is no ambiguity between a simple index
number and a date, since dates always contain a colon. With annual time-series data, however,
such ambiguity exists and it is resolved by the rule that a number in brackets is always read as a
simple index: x[1905] means the nineteen-hundred and fifth observation, not the observation for
the year 1905. You can specify a year by quotation, as in x["1905"].
Destruction
Objects of the types discussed above, with the important exception of named lists, are all destroyed
using the delete command: delete objectname.
Lists are an exception for this reason: in the context of gretl commands, a named list expands to
the ID numbers of the member series, so if you say
delete L
for L a list, the effect is to delete all the series in L; the list itself is not destroyed, but ends up
empty. To delete the list itself (without deleting the member series) you must invert the command
and use the list keyword:
list L delete
Note that the delete command cannot be used within a loop construct (see chapter 13).
Chapter 12
Discrete variables
When a variable can take only a finite, typically small, number of values, then it is said to be discrete.
In gretl, variables of the series type (only) can be marked as discrete. (When we speak of “variables”
below this should be understood as referring to series.) Some gretl commands act in a slightly
different way when applied to discrete variables; moreover, gretl provides a few commands that
only apply to discrete variables. Specifically, the dummify and xtab commands (see below) are
available only for discrete variables, while the freq (frequency distribution) command produces
different output for discrete variables.
12.1 Declaring variables as discrete

Gretl uses a simple heuristic to judge whether a given variable should be treated as discrete, but
you also have the option of explicitly marking a variable as discrete, in which case the heuristic
check is bypassed.
The heuristic is as follows: First, are all the values of the variable “reasonably round”, where this
is taken to mean that they are all integer multiples of 0.25? If this criterion is met, we then ask
whether the variable takes on a “fairly small” set of distinct values, where “fairly small” is defined
as less than or equal to 8. If both conditions are satisfied, the variable is automatically considered
discrete.
To mark a variable as discrete you have two options.
1. From the graphical interface, select “Variable, Edit Attributes” from the menu. A dialog box
will appear and, if the variable seems suitable, you will see a tick box labeled “Treat this
variable as discrete”. This dialog box can also be invoked via the context menu (right-click on
a variable) or by pressing the F2 key.
2. From the command-line interface, via the discrete command. The command takes one or
more arguments, which can be either variables or list of variables. For example:
list xlist = x1 x2 x3
discrete z1 xlist z2
This syntax makes it possible to declare as discrete many variables at once, which cannot
presently be done via the graphical interface. The switch --reverse reverses the declaration
of a variable as discrete, or in other words marks it as continuous. For example:
discrete foo
# now foo is discrete
discrete foo --reverse
# now foo is continuous
The command-line variant is more powerful, in that you can mark a variable as discrete even if it
does not seem to be suitable for this treatment.
Note that marking a variable as discrete does not affect its content. It is the user’s responsibility
to make sure that marking a variable as discrete is a sensible thing to do. Note that if you want to
recode a continuous variable into classes, you can use gretl’s arithmetical functionality, as in the
following example:
97
Chapter 12. Discrete variables 98
nulldata 100
# generate a series with mean 2 and variance 1
series x = normal() + 2
# split into 4 classes
series z = (x>0) + (x>2) + (x>4)
# now declare z as discrete
discrete z
Once a variable is marked as discrete, this setting is remembered when you save the data file.
12.2 Commands for discrete variables

The dummify command
The dummify command takes as argument a series x and creates dummy variables for each distinct
value present in x, which must have already been declared as discrete. Example:
open greene22_2
discrete Z5 # mark Z5 as discrete
dummify Z5
The effect of the above command is to generate 5 new dummy variables, labeled DZ5_1 through
DZ5_5, which correspond to the different values in Z5. Hence, the variable DZ5_4 is 1 if Z5 equals
4 and 0 otherwise. This functionality is also available through the graphical interface by selecting
the menu item “Add, Dummies for selected discrete variables”.
The dummify command can also be used with the following syntax:
list dlist = dummify(x)
This not only creates the dummy variables, but also a named list (see section 15.1) that can be used
afterwards. The following example computes summary statistics for the variable Y for each value
of Z5:
open greene22_2
list foo = dummify(Z5)
loop foreach i foo
smpl $i --restrict --replace
summary Y
endloop
smpl --full
Since dummify generates a list, it can be used directly in commands that call for a list as input, such
as ols. For example:
open greene22_2
ols Y 0 dummify(Z5)
The freq command

The freq command displays absolute and relative frequencies for a given variable. The way fre-
quencies are counted depends on whether the variable is continuous or discrete. This command is
also available via the graphical interface by selecting the “Variable, Frequency distribution” menu
entry.
For discrete variables, frequencies are counted for each distinct value that the variable takes. For
continuous variables, values are grouped into “bins” and then the frequencies are counted for each
bin. The number of bins, by default, is computed as a function of the number of valid observations
in the currently selected sample via the rule shown in Table 12.1. However, when the command is
invoked through the menu item “Variable, Frequency Plot”, this default can be overridden by the
user.
Observations Bins
8 ≤ n < 16 5
16 ≤ n < 50 7
√
50 ≤ n ≤ 850 ⌈ n⌉
n > 850 29
Table 12.1: Number of bins for various sample sizes
For example, the following code
open greene19_1
freq TUCE
discrete TUCE # mark TUCE as discrete
freq TUCE
yields
Read datafile /usr/local/share/gretl/data/greene/greene19_1.gdt

periodicity: 1, maxobs: 32,
observations range: 1-32
Listing 5 variables:
0) const 1) GPA 2) TUCE 3) PSI 4) GRADE
? freq TUCE
Frequency distribution for TUCE, obs 1-32

number of bins = 7, mean = 21.9375, sd = 3.90151
interval midpt frequency rel. cum.
< 13.417 12.000 1 3.12% 3.12% *

13.417 - 16.250 14.833 1 3.12% 6.25% *
16.250 - 19.083 17.667 6 18.75% 25.00% ******
19.083 - 21.917 20.500 6 18.75% 43.75% ******
21.917 - 24.750 23.333 9 28.12% 71.88% **********
24.750 - 27.583 26.167 7 21.88% 93.75% *******
>= 27.583 29.000 2 6.25% 100.00% **
Test for null hypothesis of normal distribution:

Chi-square(2) = 1.872 with p-value 0.39211
? discrete TUCE # mark TUCE as discrete
? freq TUCE
Frequency distribution for TUCE, obs 1-32
frequency rel. cum.
12 1 3.12% 3.12% *
14 1 3.12% 6.25% *
17 3 9.38% 15.62% ***
19 3 9.38% 25.00% ***

20 2 6.25% 31.25% **
21 4 12.50% 43.75% ****
22 2 6.25% 50.00% **
23 4 12.50% 62.50% ****
24 3 9.38% 71.88% ***
25 4 12.50% 84.38% ****
26 2 6.25% 90.62% **
27 1 3.12% 93.75% *
28 1 3.12% 96.88% *
29 1 3.12% 100.00% *
Test for null hypothesis of normal distribution:

Chi-square(2) = 1.872 with p-value 0.39211
As can be seen from the sample output, a Doornik–Hansen test for normality is computed auto-
matically. This test is suppressed for discrete variables where the number of distinct values is less
than 10.
This command accepts two options: --quiet, to avoid generation of the histogram when invoked
from the command line and --gamma, for replacing the normality test with Locke’s nonparametric
test, whose null hypothesis is that the data follow a Gamma distribution.
If the distinct values of a discrete variable need to be saved, the values() matrix construct can be
used (see chapter 17).
The xtab command

The xtab command cab be invoked in either of the following ways. First,
xtab ylist ; xlist
where ylist and xlist are lists of discrete variables. This produces cross-tabulations (two-way
frequencies) of each of the variables in ylist (by row) against each of the variables in xlist (by
column). Or second,
xtab xlist
In the second case a full set of cross-tabulations is generated; that is, each variable in xlist is tabu-
lated against each other variable in the list. In the graphical interface, this command is represented
by the “Cross Tabulation” item under the View menu, which is active if at least two variables are
selected.
Here is an example of use:
open greene22_2
discrete Z* # mark Z1-Z8 as discrete
xtab Z1 Z4 ; Z5 Z6
which produces
Cross-tabulation of Z1 (rows) against Z5 (columns)
[ 1][ 2][ 3][ 4][ 5] TOT.
[ 0] 20 91 75 93 36 315
[ 1] 28 73 54 97 34 286
TOTAL 48 164 129 190 70 601

Pearson chi-square test = 5.48233 (4 df, p-value = 0.241287)
[ 9][ 12][ 14][ 16][ 17][ 18][ 20] TOT.
[ 0] 4 36 106 70 52 45 2 315
[ 1] 3 8 48 45 37 67 78 286
TOTAL 7 44 154 115 89 112 80 601
Pearson chi-square test = 123.177 (6 df, p-value = 3.50375e-24)
[ 1][ 2][ 3][ 4][ 5] TOT.
[ 0] 17 60 35 45 14 171
[ 1] 31 104 94 145 56 430
TOTAL 48 164 129 190 70 601
[ 9][ 12][ 14][ 16][ 17][ 18][ 20] TOT.
[ 0] 1 8 39 47 30 32 14 171
[ 1] 6 36 115 68 59 80 66 430
TOTAL 7 44 154 115 89 112 80 601
Pearson’s χ 2 test for independence is automatically displayed, provided that all cells have expected
frequencies under independence greater than 10−7 . However, a common rule of thumb states that
this statistic is valid only if the expected frequency is 5 or greater for at least 80 percent of the
cells. If this condition is not met a warning is printed.
Additionally, the --row or --column options can be given: in this case, the output displays row or
column percentages, respectively.
If you want to cut and paste the output of xtab to some other program, e.g. a spreadsheet, you
may want to use the --zeros option; this option causes cells with zero frequency to display the
number 0 instead of being empty.
Chapter 13
Loop constructs
13.1 Introduction
The command loop opens a special mode in which gretl accepts a block of commands to be re-
peated zero or more times. This feature may be useful for, among other things, Monte Carlo
simulations, bootstrapping of test statistics and iterative estimation procedures. The general form
of a loop is:
loop control-expression [ --progressive | --verbose ]

loop body
endloop
Five forms of control-expression are available, as explained in section 13.2.

Not all gretl commands are available within loops; the commands that are not presently accepted
in this context are shown in Table 13.1.
Table 13.1: Commands not usable in loops
function include nulldata quit run setmiss
By default, the genr command operates quietly in the context of a loop (without printing informa-
tion on the variable generated). To force the printing of feedback you may specify the --verbose
option to loop.
The --progressive option to loop modifies the behavior of the commands print and store,
and certain estimation commands, in a manner that may be useful with Monte Carlo analyses (see
Section 13.4).
The following sections explain the various forms of the loop control expression and provide some
examples of use of loops.
☞ If you are carrying out a substantial Monte Carlo analysis with many thousands of repetitions, memory
capacity and processing time may be an issue. To minimize the use of computer resources, run your script
using the command-line program, gretlcli, with output redirected to a file.
13.2 Loop control variants

Count loop
The simplest form of loop control is a direct specification of the number of times the loop should
be repeated. We refer to this as a “count loop”. The number of repetitions may be a numerical
constant, as in loop 1000, or may be read from a scalar variable, as in loop replics.
In the case where the loop count is given by a variable, say replics, in concept replics is an
integer; if the value is not integral, it is converted to an integer by truncation. Note that replics is
evaluated only once, when the loop is initially compiled.
102
Chapter 13. Loop constructs 103
While loop
A second sort of control expression takes the form of the keyword while followed by a Boolean
expression. For example,
loop while essdiff > .00001
Execution of the commands within the loop will continue so long as (a) the specified condition
evaluates as true and (b) the number of iterations does not exceed the value of the internal variable
loop_maxiter. By default this equals 100000, but you can specify a different value (or remove the
limit) via the set command (see the Gretl Command Reference).
Index loop
A third form of loop control uses an index variable, for example i.1 In this case you specify starting
and ending values for the index, as in loop i=1..20.
The index variable may be a pre-existing scalar; if this is not the case, the variable is created
automatically and is destroyed on exit from the loop.
The index may be used within the loop body in either of two ways: you can access the integer value
of i or you can use its string representation, $i.
The starting and ending values for the index can be given in numerical form, by reference to pre-
defined scalar variables, or as expressions that evaluate to scalars. In the latter two cases the
variables are evaluated once, at the start of the loop. In addition, with time series data you can give
the starting and ending values in the form of dates, as in loop i=1950:1..1999:4 for quarterly
data.
This form of loop control is intended to be quick and easy, and as such it is subject to certain
limitations. In particular, standard behavior is to increment the index variable by one at each
iteration. So, for example, if you have
loop i=m..n
where m and n are scalar variables with values m > n at the time of execution, the index will not be
decremented; rather, the loop will simply be bypassed.
One modification of this behavior is supported, via the option flag --decr (or -d for short). This
causes the index to be decremented by one at each iteration. For example,
loop i=m..n --decr
In this case the loop will be bypassed if m < n. If you need more flexible control, see the “for” form
below.
The index loop is particularly useful in conjunction with the values() matrix function when some
operation must be carried out for each value of some discrete variable (see chapter 12). Consider
the following example:
open greene22_2
discrete Z8
v8 = values(Z8)
loop i=1..rows(v8)
scalar xi = v8[i]
smpl Z8==xi --restrict --replace
printf "mean(Y | Z8 = %g) = %8.5f, sd(Y | Z8 = %g) = %g\n", \
xi, mean(Y), xi, sd(Y)
endloop
1 It is common programming practice to use simple, one-character names for such variables.
In this case, we evaluate the conditional mean and standard deviation of the variable Y for each
value of Z8.
Foreach loop
The fourth form of loop control also uses an index variable, in this case to index a specified set
of strings. The loop is executed once for each string in the list. This can be useful for performing
repetitive operations on a list of variables. Here is an example of the syntax:
loop foreach i peach pear plum

print "$i"
endloop
This loop will execute three times, printing out “peach”, “pear” and “plum” on the respective itera-
tions. The numerical value of the index starts at 1 and is incremented by 1 at each iteration.
If you wish to loop across a list of variables that are contiguous in the dataset, you can give the
names of the first and last variables in the list, separated by “..”, rather than having to type all
the names. For example, say we have 50 variables AK, AL, . . . , WY, containing income levels for the
states of the US. To run a regression of income on time for each of the states we could do:
genr time
loop foreach i AL..WY
ols $i const time
endloop
This loop variant can also be used for looping across the elements in a named list (see chapter 15).
For example:
list ylist = y1 y2 y3
loop foreach i ylist
ols $i const x1 x2
endloop
Note that if you use this idiom inside a function (see chapter 14), looping across a list that has been
supplied to the function as an argument, it is necessary to use the syntax listname.$i to reference
the list-member variables. In the context of the example above, this would mean replacing the third
line with
ols ylist.$i const x1 x2
Two other cases are supported: the target of foreach can be a named array of strings or a bundle
(see chapter 11). In the array case, $i gets (naturally) the string at position i in the array, from
1 to the number of elements; in the bundle case it gets the key-strings of all bundle members (in
no particular order). For a bundle b, the command “print b” gives a fairly terse account of the
bundle’s membership; for a full account you can do:
loop foreach i b
print "$i:"
eval b["$i"]
endloop
For loop
The final form of loop control emulates the for statement in the C programming language. The
syntax is loop for, followed by three component expressions, separated by semicolons and sur-
rounded by parentheses. The three components are as follows:
1. Initialization: This is evaluated only once, at the start of the loop. Common example: setting
a scalar control variable to some starting value.
2. Continuation condition: this is evaluated at the top of each iteration (including the first). If
the expression evaluates as true (non-zero), iteration continues, otherwise it stops. Common
example: an inequality expressing a bound on a control variable.
3. Modifier: an expression which modifies the value of some variable. This is evaluated prior
to checking the continuation condition, on each iteration after the first. Common example: a
control variable is incremented or decremented.
Here’s a simple example:
loop for (r=0.01; r<.991; r+=.01)
In this example the variable r will take on the values 0.01, 0.02, . . . , 0.99 across the 99 iterations.
Note that due to the finite precision of floating point arithmetic on computers it may be necessary
to use a continuation condition such as the above, r<.991, rather than the more “natural” r<=.99.
(Using double-precision numbers on an x86 processor, at the point where you would expect r to
equal 0.99 it may in fact have value 0.990000000000001.)
Any or all of the three expressions governing a for loop may be omitted — the minimal form is
(;;). If the continuation test is omitted it is implicitly true, so you have an infinite loop unless you
arrange for some other way out, such as a break statement (see section 13.3 below).
If the initialization expression in a for loop takes the common form of setting a scalar variable to
a given value, the string representation of that scalar’s value is made available within the loop via
the accessor $varname.
13.3 Special controls

Besides the control afforded by the governing expression at the top of a loop, the flow of execution
can be adjusted via the keywords break and continue.
The break keyword terminates execution of the current loop immediately, while continue has the
effect of skipping any subsequent statements within the loop on the current iteration; execution
will proceed to the next iteration if the condition for continuation is still satisfied.
13.4 Progressive mode

If the --progressive option is given for a command loop, special behavior is invoked for certain
commands, namely, print, store and simple estimation commands. By “simple” here we mean
commands which (a) estimate a single equation (as opposed to a system of equations) and (b) do
so by means of a single command statement (as opposed to a block of statements, as with nls and
mle). The paradigm is ols; other possibilities include tsls, wls, logit and so on.
The special behavior is as follows.
Estimators: The results from each individual iteration of the estimator are not printed. Instead,
after the loop is completed you get a printout of (a) the mean value of each estimated coefficient
across all the repetitions, (b) the standard deviation of those coefficient estimates, (c) the mean
value of the estimated standard error for each coefficient, and (d) the standard deviation of the
estimated standard errors. Note that this is useful only if there is some random input at each step.
print: When this command is used to print the value of a variable, its value is not printed each
time round the loop. Rather, when the loop is terminated you get a printout of the mean and
standard deviation of the variable, across the repetitions of the loop. This mode is intended for use
with variables that have a scalar value at each iteration, for example the sum of squared residuals
from a regression. Series cannot be printed in this way, and neither can matrices.
store: This command writes out the values of the specified scalars, from each time round the
loop, to a specified file. Thus it keeps a complete record of their values across the iterations. For
example, coefficient estimates could be saved in this way so as to permit subsequent examination
of their frequency distribution. Only one such store can be used in a given loop.
13.5 Loop examples

Monte Carlo example
A simple example of a Monte Carlo loop in “progressive” mode is shown in Listing 13.1.
Listing 13.1: Simple Monte Carlo loop [Download ▼]
nulldata 50
set seed 547
series x = 100 * uniform()
# open a "progressive" loop, to be repeated 100 times
loop 100 --progressive
series u = 10 * normal()
# construct the dependent variable
series y = 10*x + u
# run OLS regression
ols y const x
# grab the coefficient estimates and R-squared
scalar a = $coeff(const)
scalar b = $coeff(x)
scalar r2 = $rsq
# arrange for printing of stats on these
print a b r2
# and save the coefficients to file
store coeffs.gdt a b
endloop
This loop will print out summary statistics for the a and b estimates and R 2 across the 100 rep-
etitions. After running the loop, coeffs.gdt, which contains the individual coefficient estimates
from all the runs, can be opened in gretl to examine the frequency distribution of the estimates in
detail.
The nulldata command is useful for Monte Carlo work. Instead of opening a “real” data set,
nulldata 50 (for instance) creates an artificial dataset, containing just a constant and an index
variable, with 50 observations. Constructed variables can then be added. See the set command for
information on generating repeatable pseudo-random series.
Iterated least squares

Listing 13.2 uses a “while” loop to replicate the estimation of a nonlinear consumption function of
the form
C = α + βY γ + ϵ
as presented in Greene (2000), Example 11.3. This script is included in the gretl distribution under
the name greene11_3.inp; you can find it in gretl under the menu item “File, Script files, Example
scripts, Greene...”.
The option --print-final for the ols command arranges matters so that the regression results
will not be printed each time round the loop, but the results from the regression on the last iteration
will be printed when the loop terminates.
Listing 13.2: Nonlinear consumption function [Download ▼]
open greene11_3.gdt
# run initial OLS
ols C 0 Y
scalar essbak = $ess
scalar essdiff = 1
scalar beta = $coeff(Y)
scalar gamma = 1
# iterate OLS till the error sum of squares converges

loop while essdiff > .00001
# form the linearized variables
series C0 = C + gamma * beta * Y^gamma * log(Y)
series x1 = Y^gamma
series x2 = beta * Y^gamma * log(Y)
# run OLS
ols C0 0 x1 x2 --print-final --no-df-corr --vcv
beta = $coeff[2]
gamma = $coeff[3]
ess = $ess
essdiff = abs(ess - essbak)/essbak
essbak = ess
endloop
# print parameter estimates using their "proper names"

printf "alpha = %g\n", $coeff[1]
printf "beta = %g\n", beta
printf "gamma = %g\n", gamma
Listing 13.3 shows how a loop can be used to estimate an ARMA model, exploiting the “outer
product of the gradient” (OPG) regression discussed by Davidson and MacKinnon (1993).
Further examples of loop usage that may be of interest can be found in chapter 21.
Listing 13.3: ARMA 1, 1 [Download ▼]
# Estimation of an ARMA(1,1) model "manually", using a loop
open arma.gdt
scalar c = 0
scalar a = 0.1
scalar m = 0.1
series e = 0.0
series de_c = e
series de_a = e
series de_m = e
scalar crit = 1
loop while crit > 1.0e-9

# one-step forecast errors
e = y - c - a*y(-1) - m*e(-1)
# log-likelihood
scalar loglik = -0.5 * sum(e^2)
print loglik
# partials of e with respect to c, a, and m

de_c = -1 - m * de_c(-1)
de_a = -y(-1) -m * de_a(-1)
de_m = -e(-1) -m * de_m(-1)
# partials of l with respect to c, a and m

series sc_c = -de_c * e
series sc_a = -de_a * e
series sc_m = -de_m * e
# OPG regression
ols const sc_c sc_a sc_m --print-final --no-df-corr --vcv
# Update the parameters

c += $coeff[1]
a += $coeff[2]
m += $coeff[3]
# show progress
printf " constant = %.8g (gradient %#.6g)\n", c, $coeff[1]
printf " ar1 coefficient = %.8g (gradient %#.6g)\n", a, $coeff[2]
printf " ma1 coefficient = %.8g (gradient %#.6g)\n", m, $coeff[3]
crit = $T - $ess
print crit
endloop
scalar se_c = $stderr[1]

scalar se_a = $stderr[2]
scalar se_m = $stderr[3]
printf "\n"
printf "constant = %.8g (se = %#.6g, t = %.4f)\n", c, se_c, c/se_c
printf "ar1 coefficient = %.8g (se = %#.6g, t = %.4f)\n", a, se_a, a/se_a
printf "ma1 coefficient = %.8g (se = %#.6g, t = %.4f)\n", m, se_m, m/se_m
Chapter 14
User-defined functions
14.1 Defining a function

Gretl offers a mechanism for defining functions, which may be called via the command line, in
the context of a script, or (if packaged appropriately, see section 14.5) via the program’s graphical
interface.
The syntax for defining a function looks like this:
function type funcname (parameters)
function body
end function
The opening line of a function definition contains these elements, in strict order:
1. The keyword function.

2. type, which states the type of value returned by the function, if any. This must be one of void
(if the function does not return anything), scalar, series, matrix, list, string, bundle or
one of gretl’s array types, matrices, bundles, strings (see section 11.8).
3. funcname, the unique identifier for the function. Function names have a maximum length of
31 characters; they must start with a letter and can contain only letters, numerals and the
underscore character. You will get an error if you try to define a function having the same
name as an existing gretl command.
4. The function’s parameters, in the form of a comma-separated list enclosed in parentheses.
This may be run into the function name, or separated by white space as shown. In case the
function takes no arguments (unusual, but acceptable) this should be indicated by placing the
keyword void between the parameter-list parentheses.
Function parameters can be of any of the types shown below.1
Type Description
bool scalar variable acting as a Boolean switch
int scalar variable acting as an integer
scalar scalar variable
series data series
list named list of series
matrix matrix or vector
string string variable or string literal
bundle all-purpose container (see section 11.7)
matrices array of matrices (see section 11.8)
bundles array of bundles
strings array of strings
1 An additional parameter type is available for GUI use, namely obs; this is equivalent to int except for the way it is
represented in the graphical interface for calling a function.
109
Chapter 14. User-defined functions 110
Each element in the listing of parameters must include two terms: a type specifier, and the name
by which the parameter shall be known within the function. An example follows:
function scalar myfunc (series y, list xvars, bool verbose)
Each of the type-specifiers, with the exception of list and string, may be modified by prepending
an asterisk to the associated parameter name, as in
function scalar myfunc (series *y, scalar *b)
The meaning of this modification is explained below (see section 14.4); it is related to the use of
pointer arguments in the C programming language.
Function parameters: optional refinements

Besides the required elements mentioned above, the specification of a function parameter may
include some additional fields, as follows:
• The const modifier.
• For scalar or int parameters: minimum, maximum and/or default values; or for bool pa-
rameters, just a default value.
• For optional arguments other than scalar, int and bool, the special default value null.
• For all parameters, a descriptive string.
• For int parameters with minimum and maximum values specified, a set of strings to associate
with the allowed numerical values (value labels).
The first three of these options may be useful in many contexts; the last two may be helpful if a
function is to be packaged for use in the gretl GUI (but probably not otherwise). We now expand on
each of the options.
• The const modifier: must be given as a prefix to the basic parameter specification, as in
const matrix M
This constitutes a promise that the corresponding argument will not be modified within the
function; gretl will flag an error if the function attempts to modify the argument.
• Minimum, maximum and default values for scalar or int types: These values should di-
rectly follow the name of the parameter, enclosed in square brackets and with the individual
elements separated by colons. For example, suppose we have an integer parameter order for
which we wish to specify a minimum of 1, a maximum of 12, and a default of 4. We can write
int order[1:12:4]
If you wish to omit any of the three specifiers, leave the corresponding field empty. For
example [1::4] would specify a minimum of 1 and a default of 4 while leaving the maximum
unlimited. However, as a special case, it is acceptable to give just one value, with no colons,
in which case the value is interpreted as a default. So for example
int k[0]
designates a default value of 0 for the parameter k, with no minimum or maximum specified.
If you wished to specify a minimum of zero with no maximum or default you would have to
write
int k[0::]
For a parameter of type bool (whose values are just zero or non-zero), you can specify a
default of 1 (true) or 0 (false), as in
bool verbose[0]
• Descriptive string: This will show up as an aid to the user if the function is packaged (see
section 14.5 below) and called via gretl’s graphical interface. The string should be enclosed
in double quotes and separated from the preceding elements of the parameter specification
with a space, as in
series y "dependent variable"
• Value labels: These may be used only with int parameters for which minimum and maximum
values have been specified (so that there is a fixed number of admissible values) and the
number of labels must match the number of values. They will show up in the graphical
interface in the form of a drop-down list, making the function writer’s intent clearer when an
integer argument represents a categorical selection. A set of value labels must be enclosed in
braces, and the individual labels must be enclosed in double quotes and separated by commas
or spaces. For example:
int case[1:3:1] {"Fixed effects", "Between model", "Random effects"}
If two or more of the trailing optional fields are given in a parameter specification, they must be
given in the order shown above: min/max/default, description, value labels. Note that there is
no facility for “escaping” characters within descriptive strings or value labels; these may contain
spaces but they cannot contain the double-quote character.
Here is an example of a well-formed function specification using all the elements mentioned above:
function matrix myfunc (series y "dependent variable",

list X "regressors",
int p[0::1] "lag order",
int c[1:2:1] "criterion" {"AIC", "BIC"},
bool quiet[0])
One advantage of specifying default values for parameters, where applicable, is that in script or
command-line mode users may omit trailing arguments that have defaults. For example, myfunc
above could be invoked with just two arguments, corresponding to y and X; implicitly p = 1, c = 1
and quiet is false.
Functions taking no parameters

You may define a function that has no parameters (these are called “routines” in some programming
languages). In this case, use the keyword void in place of the listing of parameters:
function matrix myfunc2 (void)
The function body

The function body is composed of gretl commands, or calls to user-defined functions (that is,
function calls may be nested). A function may call itself (that is, functions may be recursive). While
the function body may contain function calls, it may not contain function definitions. That is, you
cannot define a function inside another function. For further details, see section 14.4.
14.2 Calling a function

A user function is called by typing its name followed by zero or more arguments enclosed in
parentheses. If there are two or more arguments they must be separated by commas.
There are automatic checks in place to ensure that the number of arguments given in a function
call matches the number of parameters, and that the types of the given arguments match the types
specified in the definition of the function. An error is flagged if either of these conditions is violated.
One qualification: allowance is made for omitting arguments at the end of the list, provided that
default values are specified in the function definition. To be precise, the check is that the number
of arguments is at least equal to the number of required parameters, and is no greater than the
total number of parameters.
In general, an argument to a function may be given either as the name of a pre-existing variable or
as an expression which evaluates to a variable of the appropriate type.
The following trivial example illustrates a function call that correctly matches the corresponding
function definition.
# function definition
function scalar ols_ess (series y, list xvars)
ols y 0 xvars --quiet
printf "ESS = %g\n", $ess
return $ess
end function
# main script
open data4-1
list xlist = 2 3 4
# function call (the return value is ignored here)
ols_ess(price, xlist)
The function call gives two arguments: the first is a data series specified by name and the second is
a named list of regressors. Note that while the function offers the Error Sum of Squares as a return
value, it is ignored by the caller in this instance. (As a side note here, if you want a function to
calculate some value having to do with a regression, but are not interested in the full results of the
regression, you may wish to use the --quiet flag with the estimation command as shown above.)
A second example shows how to write a function call that assigns a return value to a variable in the
caller:
# function definition
function series get_uhat (series y, list xvars)
return $uhat
end function
# main script
open data4-1
list xlist = 2 3 4
# function call
series resid = get_uhat(price, xlist)
14.3 Deleting a function

If you have defined a function and subsequently wish to clear it out of memory, you can do so using
the keywords delete or clear, as in
function myfunc delete

function get_uhat clear
Note, however, that if myfunc is already a defined function, providing a new definition automatically
overwrites the previous one, so it should rarely be necessary to delete functions explicitly.
14.4 Function programming details

Variables versus pointers
Most arguments to functions can be passed in two ways: “as they are”, or via pointers (the exception
is the list type, which cannot be passed as a pointer). First consider the following rather artificial
example:
function series triple1 (series x)

return 3*x
end function
function void triple2 (series *x)

x *= 3
end function
nulldata 10
series y = normal()
series y3 = triple1(y)
print y3
triple2(&y)
print y
These two functions produce essentially the same result — the two print statements in the caller
will show the same values—but in quite different ways. The first explicitly returns a modified
version of its input (which must be a plain series): after the call to triple1, y is unaltered; it
would have been altered only if the return value were assigned back to y rather than y3. The
second function modifies its input (given as a pointer to a series) in place without actually returning
anything.
It’s worth noting that triple2 as it stands would not be considered idiomatic as a gretl function
(although it’s formally OK). The point here is just to illustrate the distinction between passing an
argument in the default way and in pointer form.
Why make this distinction? There are two main reasons for doing so: modularity and performance.
By modularity we mean the insulation of a function from the rest of the script which calls it. One of
the many benefits of this approach is that your functions are easily reusable in other contexts. To
achieve modularity, variables created within a function are local to that function, and are destroyed
when the function exits, unless they are made available as return values and these values are “picked
up” or assigned by the caller. In addition, functions do not have access to variables in “outer scope”
(that is, variables that exist in the script from which the function is called) except insofar as these
are explicitly passed to the function as arguments.
By default, when a variable is passed to a function as an argument, what the function actually “gets”
is a copy of the outer variable, which means that the value of the outer variable is not modified by
anything that goes on inside the function. This means that you can pass arguments to a function
without worrying about possible side effects; at the same time the function writer can use argument
variables as workspace without fear of disruptive effects at the level of the caller.
The use of pointers, however, allows a function and its caller to cooperate such that an outer
variable can be modified by the function. In effect, this allows a function to “return” more than one
value (although only one variable can be returned directly — see below). To indicate that a particular
object is to be passed as a pointer, the parameter in question is marked with a prefix of * in the
function definition, and the corresponding argument is marked with the complementary prefix & in
the caller. For example,
function series get_uhat_and_ess(series y, list xvars, scalar *ess)

ess = $ess
series uh = $uhat
return uh
end function
open data4-1
list xlist = 2 3 4
scalar SSR
series resid = get_uhat_and_ess(price, xlist, &SSR)
In the above, we may say that the function is given the address of the scalar variable SSR, and it
assigns a value to that variable (under the local name ess). (For anyone used to programming in C:
note that it is not necessary, or even possible, to “dereference” the variable in question within the
function using the * operator. Unadorned use of the name of the variable is sufficient to access the
variable in outer scope.)
An “address” parameter of this sort can be used as a means of offering optional information to the
caller. (That is, the corresponding argument is not strictly needed, but will be used if present). In
that case the parameter should be given a default value of null and the the function should test to
see if the caller supplied a corresponding argument or not, using the built-in function exists().
For example, here is the simple function shown above, modified to make the filling out of the ess
value optional.
function series get_uhat_and_ess(series y, list xvars, scalar *ess[null])

if exists(ess)
ess = $ess
endif
return $uhat
end function
If the caller does not care to get the ess value, it can use null in place of a real argument:
series resid = get_uhat_and_ess(price, xlist, null)
Alternatively, trailing function arguments that have default values may be omitted, so the following
would also be a valid call:
series resid = get_uhat_and_ess(price, xlist)
One limitation on the use of pointer-type arguments should be noted: you cannot supply a given
variable as a pointer argument more than once in any given function call. For example, suppose we
have a function that takes two matrix-pointer arguments,
function scalar pointfunc (matrix *a, matrix *b)
And suppose we have two matrices, x and y, at the caller level. The call
pointfunc(&x, &y)
is OK, but the call
pointfunc(&x, &x) # will not work
will generate an error. That’s because the situation inside the function would become too confusing,
with what is really the same object existing under two names.
Const parameters
Pointer-type arguments may also be useful for optimizing performance. Even if a variable is not
modified inside the function, it may be a good idea to pass it as a pointer if it occupies a lot of
memory. Otherwise, the time gretl spends transcribing the value of the variable to the local copy
may be non-negligible compared to the time the function spends doing the job it was written for.
Listing 14.1 takes this to the extreme. We define two functions which return the number of rows
of a matrix (a pretty fast operation). The first gets a matrix as argument while the second gets a
pointer to a matrix. The functions are evaluated 500 times on a matrix with 2000 rows and 2000
columns; on a typical system floating-point numbers take 8 bytes of memory, so the total size of
the matrix is roughly 32 megabytes.
Running the code in example 14.1 will produce output similar to the following (the actual numbers
of course depend on the machine you’re using):
Elapsed time:
without pointers (copy) = 2.47197 seconds,
with pointers (no copy) = 0.00378627 seconds
Listing 14.1: Performance comparison: values versus pointer [Download ▼]
function scalar rowcount1 (matrix X)

return rows(X)
end function
function scalar rowcount2 (const matrix *X)

return rows(X)
end function
set verbose off

X = zeros(2000,2000)
scalar r
set stopwatch
loop 500
r = rowcount1(X)
endloop
e1 = $stopwatch
set stopwatch
loop 500
r = rowcount2(&X)
endloop
e2 = $stopwatch
printf "Elapsed time:\n\

without pointers (copy) = %g seconds,\n \
with pointers (no copy) = %g seconds\n", e1, e2
If a pointer argument is used for this sort of purpose — and the object to which the pointer points
is not modified (is treated as read-only) by the function — one can signal this to the user by adding
the const qualifier, as shown for function rowcount2 in Listing 14.1. When a pointer argument is
qualified in this way, any attempt to modify the object within the function will generate an error.
However, combining the const flag with the pointer mechanism is technically redundant for the
following reason: if you mark a matrix argument as const then gretl will in fact pass it in pointer
mode internally (since it can’t be modified within the function there’s no downside to simply mak-
ing it available to the function rather than copying it). So in the example above we could revise the
signature of the second function as
function scalar rowcount2a (const matrix X)
and call it with r = rowcount2a(X), for the same speed-up relative to rowcount1.
From the caller’s point of view the second option — using the const modifier without pointer
notation—is preferable, as it allows the caller to pass an object created “on the fly”. Suppose
the caller has two matrices, A and B, in scope, and wishes to pass their vertical concatenation as an
argument. The following call would work fine:
r = rowcount2a(A|B)
To use rowcount2, on the other hand, the caller would have to create a named variable first (since
you cannot give the “address” of a anonymous object such as A|B):
matrix AB = A|B
r = rowcount2(&AB)
This requires an extra line of code, and leaves AB occupying memory after the call.
We have illustrated using a matrix parameter, but the const modifier may be used with the same
effect—namely, the argument is passed directly, without being copied, but is protected against
modification within the function—for all the types that support the pointer apparatus.
List arguments
The use of a named list as an argument to a function gives a means of supplying a function with
a set of variables whose number is unknown when the function is written — for example, sets of
regressors or instruments. Within the function, the list can be passed on to commands such as
ols.
A list argument can also be “unpacked” using a foreach loop construct, but this requires some
care. For example, suppose you have a list X and want to calculate the standard deviation of each
variable in the list. You can do:
loop foreach i X
scalar sd_$i = sd(X.$i)
endloop
Please note: a special piece of syntax is needed in this context. If we wanted to perform the above
task on a list in a regular script (not inside a function), we could do
loop foreach i X
scalar sd_$i = sd($i)
endloop
where $i gets the name of the variable at position i in the list, and sd($i) gets its standard
deviation. But inside a function, working on a list supplied as an argument, if we want to reference
an individual variable in the list we must use the syntax listname.varname. Hence in the example
above we write sd(X.$i).
This is necessary to avoid possible collisions between the name-space of the function and the name-
space of the caller script. For example, suppose we have a function that takes a list argument, and
that defines a local variable called y. Now suppose that this function is passed a list containing
a variable named y. If the two name-spaces were not separated either we’d get an error, or the
external variable y would be silently over-written by the local one. It is important, therefore, that
list-argument variables should not be “visible” by name within functions. To “get hold of” such
variables you need to use the form of identification just mentioned: the name of the list, followed
by a dot, followed by the name of the variable.
Constancy of list arguments When a named list of variables is passed to a function, the function
is actually provided with a copy of the list. The function may modify this copy (for instance, adding
or removing members), but the original list at the level of the caller is not modified.
Optional list arguments If a list argument to a function is optional, this should be indicated by
appending a default value of null, as in
function scalar myfunc (scalar y, list X[null])
In that case, if the caller gives null as the list argument (or simply omits the last argument) the
named list X inside the function will be empty. This possibility can be detected using the nelem()
function, which returns 0 for an empty list.
String arguments
String arguments can be used, for example, to provide flexibility in the naming of variables created
within a function. In the following example the function mavg returns a list containing two moving
averages constructed from an input series, with the names of the newly created variables governed
by the string argument.
function list mavg (series y, string vname)

list retlist = null
string newname = sprintf("%s_2", vname)
retlist += genseries(newname, (y+y(-1)) / 2)
newname = sprintf("%s_4", vname)
retlist += genseries(newname, (y+y(-1)+y(-2)+y(-3)) / 4)
return retlist
end function
open data9-9
list malist = mavg(nocars, "nocars")
print malist --byobs
The last line of the script will print two variables named nocars_2 and nocars_4. For details on
the handling of named strings, see chapter 15.
If a string argument is considered optional, it may be given a null default value, as in
function scalar foo (series y, string vname[null])
Retrieving the names of arguments

The variables given as arguments to a function are known inside the function by the names of the
corresponding parameters. For example, within the function whose signature is
function void somefun (series y)
we have the series known as y. It may be useful, however, to be able to determine the names of
the variables provided as arguments. This can be done using the function argname, which takes
the name of a function parameter as its single argument and returns a string. Here is a simple
illustration:
function void namefun (series y)

printf "the series given as ’y’ was named %s\n", argname(y)
end function
open data9-7
namefun(QNC)
This produces the output
the series given as ’y’ was named QNC
Please note that this will not always work: the arguments given to functions may be anonymous
variables, created on the fly, as in somefun(log(QNC)) or somefun(CPI/100). In that case the
argname function returns an empty string. Function writers who wish to make use of this facility
should check the return from argname using the strlen() function: if this returns 0, no name was
found.
Return values
Functions can return nothing (just printing a result, perhaps), or they can return a single variable.
The return value, if any, is specified via a statement within the function body beginning with the
keyword return, followed by either the name of a variable (which must be of the type announced
on the first line of the function definition) or an expression which produces a value of the correct
type.
Having a function return a list or bundle is a way of permitting the “return” of more than one
variable. For example, you can define several series inside a function and package them as a list;
in this case they are not destroyed when the function exits. Here is a simple example, which also
illustrates the possibility of setting the descriptive labels for variables generated in a function.
function list make_cubes (list xlist)

list cubes = null
loop foreach i xlist
series $i3 = (xlist.$i)^3
setinfo $i3 -d "cube of $i"
list cubes += $i3
endloop
return cubes
end function
open data4-1
list xlist = price sqft
list cubelist = make_cubes(xlist)
print xlist cubelist --byobs
labels
A return statement causes the function to return (exit) at the point where it appears within the
body of the function. A function may also exit when (a) the end of the function code is reached (in
the case of a function with no return value), (b) a gretl error occurs, or (c) a funcerr statement is
reached.
The funcerr keyword—which may be followed by a string enclosed in double quotes, or the name
of a string variable, or nothing—causes a function to exit with an error flagged. If a string is
provided (either literally or via a variable), this is printed on exit, otherwise a generic error message
is printed. This mechanism enables the author of a function to pre-empt an ordinary execution
error and/or offer a more specific and helpful error message. For example,
if nelem(xlist) == 0
funcerr "xlist must not be empty"
endif
A function may contain more than one return statement, as in
function scalar multi (bool s)

if s
return 1000
else
return 10
endif
end function
However, it is recommended programming practice to have a single return point from a function
unless this is very inconvenient. The simple example above would be better written as
function scalar multi (bool s)

return s ? 1000 : 10
end function
Overloading
You may have noticed that several built-in functions in gretl are “overloaded” — that is, a given
argument slot may accept more than one type of argument, and the return value may depend on
the type of the argument in question. For instance, the argument x for the pdf() function may be
a scalar, series or matrix and the return type will match that choice on the caller’s part.
Since gretl-2021b this possibility also exists for user-defined functions. The meta-type numeric
can be used in place of a specific type to accept a scalar, series or matrix argument, and similarly
the return-type of a function can be marked as numeric.
As a function writer you can choose to be more restrictive than the default (which allows scalar,
series or matrix for any numeric argument). For instance, if you write a function in which two
arguments, x and y, are specified as numeric you might decide to disallow the case where x is
a matrix and y a series, or vice versa, as too complicated. You can use the typeof() function
to determine what types of arguments were supplied, and the funcerr command or errorif()
function to reject an unsupported combination.
If your function is going to return a certain specific type (say, matrix) regardless of the type of the
input, then the return value should be labeled accordingly: use numeric for the return only if it’s
truly unknown in advance.
Listing 14.2 offers an (admittedly artificial) example: its numeric inputs can be scalars, series or
column vectors but they must be of a single type.
Naturally, if your overloaded function is intended for public use you should state clearly in its
documentation what is supported and what is not.
Error checking
When gretl first reads and “compiles” a function definition there is minimal error-checking: the
only checks are that the function name is acceptable, and, so far as the body is concerned, that you
are not trying to define a function inside a function (see Section 14.1). Otherwise, if the function
body contains invalid commands this will become apparent only when the function is called and
its commands are executed.
Debugging
The usual mechanism whereby gretl echoes commands and reports on the creation of new variables
is by default suppressed when a function is being executed. If you want more verbose output from
a particular function you can use either or both of the following commands within the function:
Listing 14.2: Example of overloaded function [Download ▼]
function numeric x_plus_b_y (numeric x, scalar b, numeric y)

errorif(typeof(x) != typeof(y), "x and y must be of the same type")
if typeof(x) <= 2 # scalar or series
return x + b*y
elif rows(x) == rows(y) && cols(x) == 1 && cols(y) == 1
return x + b*y
else
funcerr "x and y should be column vectors"
endif
end function
# call 1: x and y are scalars

eval x_plus_b_y(10, 3, 2)
# call 2: x and y are vectors

matrix x = mnormal(10, 1)
matrix y = mnormal(10, 1)
eval x_plus_b_y(x, 2, y)
open data4-1
# call 3: x and y are series
series bb = x_plus_b_y(bedrms, 0.5, baths)
print bb --byobs
set echo on
set messages on
Alternatively, you can achieve this effect for all functions via the command set debug 1. Usually
when you set the value of a state variable using the set command, the effect applies only to the
current level of function execution. For instance, if you do set messages on within function f1,
which in turn calls function f2, then messages will be printed for f1 but not f2. The debug variable,
however, acts globally; all functions become verbose regardless of their level.
Further, you can do set debug 2: in addition to command echo and the printing of messages, this
is equivalent to setting max_verbose (which produces verbose output from the BFGS maximizer) at
all levels of function execution.
14.5 Function packages

At various points above we have alluded to function packages, and the use of these via the gretl
GUI. This topic is covered in depth by the Gretl Function Package Guide. If you’re running gretl you
can find this under the Help menu. Alternatively you may download it from
https://sourceforge.net/projects/gretl/files/manual/
Chapter 15
Named lists and strings
15.1 Named lists

Many gretl commands take one or more lists of series as arguments. To make this easier to handle
in the context of command scripts, and in particular within user-defined functions, gretl offers the
possibility of named lists.
Creating and modifying named lists

A named list is created using the keyword list, followed by the name of the list, an equals sign,
and an expression that forms a list. The most basic sort of expression that works in this context is
a space-separated list of variables, given either by name or by ID number. For example,
list xlist = 1 2 3 4
list reglist = income price
Note that the variables in question must be of the series type.

Two abbreviations are available in defining lists:
• You can use the wildcard character, “*”, to create a list of variables by name. For example,
dum* can be used to indicate all variables whose names begin with dum.
• You can use two dots to indicate a range of variables. For example income..price indicates
the set of variables whose ID numbers are greater than or equal to that of income and less
than or equal to that of price.
In addition there are two special forms:
• If you use the keyword null on the right-hand side, you get an empty list.
• If you use the keyword dataset on the right, you get a list containing all the series in the
current dataset (except the pre-defined const).
The name of the list must start with a letter, and must be composed entirely of letters, numbers
or the underscore character. The maximum length of the name is 31 characters; list names cannot
contain spaces.
Once a named list has been created, it will be “remembered” for the duration of the gretl session
(unless you delete it), and can be used in the context of any gretl command where a list of variables
is expected. One simple example is the specification of a list of regressors:
list xlist = x1 x2 x3 x4
ols y 0 xlist
To get rid of a list, you use the following syntax:
list xlist delete
121
Chapter 15. Named lists and strings 122
Be careful: delete xlist will delete the series contained in the list, so it implies data loss (which
may not be what you want). On the other hand, list xlist delete will simply “undefine” the
xlist identifier; the series themselves will not be affected.
Similarly, to print the names of the members of a list you have to invert the usual print command,
as in
list xlist print
If you just say print xlist the list will be expanded and the values of all the member series will
be printed.
Lists can be modified in various ways. To redefine an existing list altogether, use the same syntax
as for creating a list. For example
list xlist = 1 2 3
xlist = 4 5 6
After the second assignment, xlist contains just variables 4, 5 and 6.

To append or prepend variables to an existing list, we can make use of the fact that a named list
stands in for a “longhand” list. For example, we can do
list xlist = xlist 5 6 7

xlist = 9 10 xlist 11 12
Another option for appending a term (or a list) to an existing list is to use +=, as in
xlist += cpi
To drop a variable from a list, use -=:
xlist -= cpi
In most contexts where lists are used in gretl, it is expected that they do not contain any duplicated
elements. If you form a new list by simple concatenation, as in list L3 = L1 L2 (where L1 and
L2 are existing lists), it’s possible that the result may contain duplicates. To guard against this you
can form a new list as the union of two existing ones:
list L3 = L1 || L2
The result is a list that contains all the members of L1, plus any members of L2 that are not already
in L1.
In the same vein, you can construct a new list as the intersection of two existing ones:
list L3 = L1 && L2
Here L3 contains all the elements that are present in both L1 and L2.
You can also subtract one list from another:
list L3 = L1 - L2
The result contains all the elements of L1 that are not present in L2.
Indexing into a defined list is also possible, as if it were a vector:
list L2 = L1[1:4]
This leaves L2 with the first four members of L1. Notice that the ordering of list members is
path-dependent.
Lists and matrices

Another way of forming a list is by assignment from a matrix. The matrix in question must be
interpretable as a vector containing ID numbers of data series. It may be either a row or a column
vector, and each of its elements must have an integer part that is no greater than the number of
variables in the data set. For example:
matrix m = {1,2,3,4}
list L = m
The above is OK provided the data set contains at least 4 variables.
Querying a list
You can determine the number of variables or elements in a list using the function nelem().
list xlist = 1 2 3
nl = nelem(xlist)
The (scalar) variable nl will be assigned a value of 3 since xlist contains 3 members.
You can determine whether a given series is a member of a specified list using the function
inlist(), as in
scalar k = inlist(L, y)
where L is a list and y a series. The series may be specified by name or ID number. The return value
is the (1-based) position of the series in the list, or zero if the series is not present in the list.
Generating lists of transformed variables

Given a named list of series, you are able to generate lists of transformations of these series using
the functions log, lags, diff, ldiff, sdiff or dummify. For example
list lxlist = log(xlist)
list difflist = diff(xlist)
When generating a list of lags in this way, you specify the maximum lag order inside the parenthe-
ses, before the list name and separated by a comma. For example
list laglist = lags(2, xlist)
or
scalar order = 4
list laglist = lags(order, xlist)
These commands will populate laglist with the specified number of lags of the variables in xlist.
You can give the name of a single series in place of a list as the second argument to lags: this is
equivalent to giving a list with just one member.
The dummify function creates a set of dummy variables coding for all but one of the distinct values
taken on by the original variable, which should be discrete. (The smallest value is taken as the
omitted catgory.) Like lags, this function returns a list even if the input is a single series.
Another useful operation you can perform with lists is creating interaction variables. Suppose you
have a discrete variable xi , taking values from 1 to n and a variable zi , which could be continuous
or discrete. In many cases, you want to “split” zi into a set of n variables via the rule
(
(j) zi when xi = j
zi =
0 otherwise;
in practice, you create dummies for the xi variable first and then you multiply them all by zi ; these
are commonly called the interactions between xi and zi . In gretl you can do
list H = D ^ Z
where D is a list of discrete series (or a single discrete series), Z is a list (or a single series)1 ; all the
interactions will be created and listed together under the name H.
An example is provided in script 15.1
Generating series from lists

There are various ways of retrieving or generating individual series from a named list. The most
basic method is indexing into the list. For example,
series x3 = Xlist[3]
will retrieve the third element of the list Xlist under the name x3 (or will generate an error if
Xlist has less then three members).
In addition gretl offers several functions that apply to a list and return a series. In most cases,
these functions also apply to single series and behave as natural extensions when applied to lists,
but this is not always the case.
For recognizing and handling missing values, gretl offers several functions (see the Gretl Command
Reference for details). In this context, it is worth remarking that the ok() function can be used
with a list argument. For example,
series xok = ok(xlist)
After these commands, the series xok will have value 1 for observations where none of x1, x2, or
x3 has a missing value, and value 0 for any observations where this condition is not met.
The functions max, min, mean, sd, sum and var behave “horizontally” rather than “vertically” when
their argument is a list. For instance, the following commands
list Xlist = x1 x2 x3
series m = mean(Xlist)
produce a series m whose i-th element is the average of x1,i , x2,i and x3,i ; missing values, if any, are
implicitly discarded.
In addition, gretl provides three functions for weighted operations: wmean, wsd and wvar. Consider
as an illustration Table 15.1: the first three columns are GDP per capita for France, Germany and
Italy; columns 4 to 6 contain the population for each country. If we want to compute an aggregate
indicator of per capita GDP, all we have to do is
list Ypc = YpcFR YpcGE YpcIT

list N = NFR NGE NIT
y = wmean(Ypc, N)
1 Warning: this construct does not work if neither D nor Z are of the the list type.
Listing 15.1: Usage of interaction lists [Download ▼]

Input:
open mroz87.gdt --quiet
# the coding below makes it so that

# KIDS = 0 -> no kids
# KIDS = 1 -> young kids only
# KIDS = 2 -> young or older kids
series KIDS = (KL6 > 0) + ((KL6 > 0) || (K618 > 0))
list D = CIT KIDS # interaction discrete variables

list X = WE WA # variables to "split"
list INTER = D ^ X
smpl 1 6
print D X INTER -o
Output (selected portions):

CIT KIDS WE WA WE_CIT_0
1 0 2 12 32 12
2 1 1 12 30 0
3 0 2 12 35 12
4 0 1 12 34 12
5 1 2 14 31 0
6 1 0 12 54 0
WE_CIT_1 WA_CIT_0 WA_CIT_1 WE_KIDS_0 WE_KIDS_1
1 0 32 0 0 0
2 12 0 30 0 12
3 0 35 0 0 0
4 0 34 0 0 12
5 14 0 31 0 0
6 12 0 54 12 0
WE_KIDS_2 WA_KIDS_0 WA_KIDS_1 WA_KIDS_2
1 12 0 0 32
2 0 0 30 0
3 12 0 0 35
4 0 0 34 0
5 14 0 0 31
6 0 54 0 0
so for example
114.9 × 59830.635 + 124.6 × 82034.771 + 119.3 × 56890.372

y1996 = = 120.163
59830.635 + 82034.771 + 56890.372
See the Gretl Command Reference for more details.
YpcFR YpcGE YpcIT NFR NGE NIT
1997 114.9 124.6 119.3 59830.635 82034.771 56890.372

1998 115.3 122.7 120.0 60046.709 82047.195 56906.744
1999 115.0 122.4 117.8 60348.255 82100.243 56916.317
2000 115.6 118.8 117.2 60750.876 82211.508 56942.108
2001 116.0 116.9 118.1 61181.560 82349.925 56977.217
2002 116.3 115.5 112.2 61615.562 82488.495 57157.406
2003 112.1 116.9 111.0 62041.798 82534.176 57604.658
2004 110.3 116.6 106.9 62444.707 82516.260 58175.310
2005 112.4 115.1 105.1 62818.185 82469.422 58607.043
2006 111.9 114.2 103.3 63195.457 82376.451 58941.499
Table 15.1: GDP per capita and population in 3 European countries (Source: Eurostat)
15.2 Named strings

For some purposes it may be useful to save a string (that is, a sequence of characters) as a named
variable that can be reused.
Some examples of the definition of a string variable are shown below.
string s1 = "some stuff I want to save"

string s2 = getenv("HOME")
string s3 = s1 + 11
The first field after the type-name string is the name under which the string should be saved, then
comes an equals sign, then comes a specification of the string to be saved. This may take any of
the following forms:
• a string literal (enclosed in double quotes); or
• the name of an existing string variable; or
• a function that returns a string (see below); or
• any of the above followed by + and an integer offset.
The role of the integer offset is to use a substring of the preceding element, starting at the given
character offset. An empty string is returned if the offset is greater than the length of the string in
question.
To add to the end of an existing string you can use the operator ~=, as in
string s1 = "some stuff I want to "

string s1 ~= "save"
or you can use the ~ operator to join two or more strings, as in
string s1 = "sweet"
string s2 = "Home, " ~ s1 ~ " home."
Note that when you define a string variable using a string literal, no characters are treated as
“special” (other than the double quotes that delimit the string). Specifically, the backslash is not
used as an escape character. So, for example,
string s = "\"
is a valid assignment, producing a string that contains a single backslash character.

If you wish to use backslash-escapes to denote newlines, tabs, embedded double-quotes and so
on, use the sprintf function instead (see the printf command for an account of the escape-
characters). This function can also be used to produce a string variable whose definition involves
the values of other variables, as in
scalar x = 8
foo = sprintf("var%d", x) # produces "var8"
String variables and string substitution

String variables can be used in two ways in scripting: the name of the variable can be typed “as
is”, or it may be preceded by the “at” sign, @. In the first variant the named string is treated as a
variable in its own right, while the second calls for “string substitution”. The context determines
which of these variants is appropriate.
In the following contexts the names of string variables should be given in plain form (without the
“at” sign):
• When such a variable appears among the arguments to the printf command or sprintf
function.
• When such a variable is given as the argument to a function.
• On the right-hand side of a string assignment.
Here is an illustration of the use of a named string argument with printf:
? string vstr = "variance"

Generated string vstr
? printf "vstr: %12s\n", vstr
vstr: variance
String substitution can be used in contexts where a string variable is not acceptable as such. If
gretl encounters the symbol @ followed directly by the name of a string variable, this notation is
treated as a “macro”: the value of the variable is sustituted literally into the command line before
the regular parsing of the command is carried out.
One common use of string substitution is when you want to construct and use the name of a series
programatically. For example, suppose you want to create 10 random normal series named norm1
to norm10. This can be accomplished as follows.
string sname = null

loop i=1..10
sname = sprintf("norm%d", i)
series @sname = normal()
endloop
Note that plain sname could not be used in the second line within the loop: the effect would be
to attempt to overwrite the string variable named sname with a series of the same name. What
we want is for the current value of sname to be dumped directly into the command that defines a
series, and the “@” notation achieves that.
Another typical use of string substitution is when you want the options used with a particular
command to vary depending on some condition. For example,
function void use_optstr (series y, list xlist, int verbose)

string optstr = verbose ? "" : "--simple-print"
ols y xlist @optstr
end function
open data4-1
list X = const sqft
use_optstr(price, X, 1)
use_optstr(price, X, 0)
When printing the value of a string variable using the print command, the plain variable name
should generally be used, as in
string s = "Just testing"

print s
The following variant is equivalent, though clumsy.

print "@s"
But note that this next variant does something quite different.

print @s
After string substitution, the print command reads
print Just testing
which attempts to print the values of two variables, Just and testing.
Built-in strings
Apart from any strings that the user may define, some string variables are defined by gretl itself.
These may be useful for people writing functions that include shell commands. The built-in strings
are as shown in Table 15.2.
gretldir the gretl installation directory

workdir user’s current gretl working directory
dotdir the directory gretl uses for temporary files
gnuplot path to, or name of, the gnuplot executable
tramo path to, or name of, the tramo executable
x12a path to, or name of, the x-12-arima executable
tramodir tramo data directory
x12adir x-12-arima data directory
Table 15.2: Built-in string variables
To access these as ordinary string variables, prepend a dollar sign (as in $dotdir); to use them in
string-substitution mode, prepend the at-sign (@dotdir).
Reading strings from the environment

It is possible to read into gretl’s named strings, values that are defined in the external environment.
To do this you use the function getenv, which takes the name of an environment variable as its
argument. For example:
? string user = getenv("USER")

Generated string user
? string home = getenv("HOME")
Generated string home
? printf "%s’s home directory is %s\n", user, home
cottrell’s home directory is /home/cottrell
To check whether you got a non-empty value from a given call to getenv, you can use the function
strlen, which retrieves the length of the string, as in
? string temp = getenv("TEMP")

Generated string temp
? scalar x = strlen(temp)
Generated scalar x = 0
Capturing strings via the shell

If shell commands are enabled in gretl, you can capture the output from such commands using the
syntax
string stringname = $(shellcommand)
That is, you enclose a shell command in parentheses, preceded by a dollar sign.
Reading from a file into a string

You can read the content of a file into a string variable using the syntax
string stringname = readfile(filename)
The filename field may be given as a string variable. For example
? fname = sprintf("%s/QNC.rts", $x12adir)

Generated string fname
? string foo = readfile(fname)
Generated string foo
More string functions

Gretl offers several functions for creating or manipulating strings. You can find these listed and
explained in the Function Reference under the category Strings.
Chapter 16
String-valued series
16.1 Introduction
By a string-valued series we mean a series whose primary values are strings (though internally such
series comprise an integer coding plus a “dictionary” mapping from the integer values to strings).
This chapter explains how to create such series and describes the operations that are supported
for them.
16.2 Creating a string-valued series

This can be done in three ways:
• by reading such a series from a suitable source file;
• by taking a suitable numerical series within gretl and adding string values using the stringify()
function; and
• by direct assignment to a series from an array of strings.
In each case string values will be preserved when such a series is saved in a gretl-native data file.
Reading string-valued series

The primary “suitable source” for string-valued series is a delimited text data file (but see sec-
tion16.5 below). Here’s a little example. The following is the content of a file named gc.csv:
city,year
"Bilbao",2009
"Toruń",2011
"Oklahoma City",2013
"Berlin",2015
"Athens",2017
"Naples",2019
A script to read this file and its output are shown in Listing 16.1, from which we can see a few
things.
• By default the print command shows us the string values of the series city, and it han-
dles non-ASCII characters provided they’re in UTF-8 (but it doesn’t handle longer strings very
elegantly).
• The --numeric option to print exposes the integer codes for a string-valued series.
• The syntax seriesname[obs] yields a string when a series is string-valued.
Suppose you want to access the numeric code for a particular string-valued observation: you can
get that by “casting” the series to a vector. Thus
130
Chapter 16. String-valued series 131
Listing 16.1: Working with a string-valued series

Input:
open gc.csv --quiet
print --byobs
print city --byobs --numeric
printf "The third gretl conference took place in %s.\n", city[3]
Output:
? print --byobs
city year
1 Bilbao 2009
2 Toruń 2011
3 Oklahoma C.. 2013
4 Berlin 2015
5 Athens 2017
6 Naples 2019
? print city --byobs --numeric
city
1 1
2 2
3 3
4 4
5 5
6 6
The third gretl conference took place in Oklahoma City.

printf "The code for ’%s’ is %d.\n", city[3], {city}[3]
gives
The code for ’Oklahoma City’ is 3.
The numeric codes for string-valued series are always assigned thus: reading the data file row by
row, the first string value is assigned 1, the next distinct string value is assigned 2, and so on.
Assigning string values to an existing series

This is done via the stringify() function, which takes two arguments, the name of a series and
an array of strings. For this to work two conditions must be met:
1. The series must have only integer values and the smallest value must be 1 or greater.
2. The array of strings must have at least n distinct members, where n is the largest value found
in the series.
The logic of these conditions is that we’re looking to create a mapping as described above, from
a 1-based sequence of integers to a set of strings. However, we’re allowing for the possibility that
the series in question is an incomplete sample from an associated population. Suppose we have a
series that goes 2, 3, 5, 9, 10. This is taken to be a sample from a population that has at least 10
discrete values, 1, 2, . . . , 10, and so requires at least 10 value-strings.
Here’s (a simplified version of) an example that one of the authors has had cause to use: deriving
US-style “letter grades” from a series containing percentage scores for students. Call the percentage
series x, and say we want to create a series with values A for x ≥ 90, B for 80 ≤ x < 90, and so on
down to F for x < 60. Then we can do:
series grade = 1 # F, the least value

grade += x >= 60 # D
grade += x >= 70 # C
grade += x >= 80 # B
grade += x >= 90 # A
stringify(grade, strsplit("F D C B A"))
The way the grade series is constructed is not the most compact, but it’s nice and explicit, and
easy to amend if one wants to adjust the threshold values. Note the use of strsplit() to create
an on-the-fly array of strings from a string literal; this is convenient when the array contains a
moderate number of elements with no embedded spaces. An alternative way to get the same result
is to define the array of strings via the defarray() function, as in
stringify(grade,defarray("F","D","C","B","A"))
The inverse operation of stringify() can be performed by the strvals() function: this retrieves
the array of distinct string values from a series (or returns an empty array if the series is not
string-valued).
Assigning from an array of strings

Given an array of strings whose length matches either the full length of the current dataset or
the length of the current sample range, you can assign directly to a series result. Here’s a trivial
example:
nulldata 6
strings S = defarray("a", "b", "c", "b", "a", "d")
series sx = S
print sx --byobs
Here’s a second example where we create a string-valued series using the “observation markers”
from the current dataset, after grabbing them as an array via the markers command:
open data4-10
markers --to-array=S
series state = S
print state --byobs
And here’s a third example where we construct the array of strings by reading from a text file:
nulldata 8
series sv = strsplit(readfile("ABCD.txt"))
print sv --byobs
This will work fine if the content of ABCD.txt is something like
A B C D D C B A
(containing 8 space-separated values, with or without line breaks). If the strings in question contain
embedded spaces you would have to make use of the optional second argument to strsplit.
16.3 Permitted operations

One question that arises with string-valued series is, what are you allowed to do with them and
what is banned? The optimal policy may be debatable, but here we set out the current state of
things.
Setting values per observation

You can set particular values in a string-valued series either by string or numeric code. For example,
suppose (in relation to the example in section 16.2) that for some reason student number 31 with
a percentage score of 88 nonetheless merits an A grade. We could do
grade[31] = "A"
or, if we’re confident about the mapping,
grade[31] = 5
Or to raise the student’s grade by one letter:
grade[31] += 1
What you’re not allowed to do here is make a numerical adjustment that would put the value out
of bounds in relation to the set of string values. For example, if we tried grade[31] = 6 we’d get
an error.
On the other hand, you can implicitly extend the set of string values. This wouldn’t make sense for
the letter grades example but it might for, say, city names. Returning to the example in section 16.2
suppose we try
dataset addobs 1
year[7] = 2021
city[7] = "London?"
This will work: we’re implicitly adding another member to the string table for city; the associated
numeric code will be the next available integer.1
Logical product of two string-valued series

The operator ^ can be used to produce what we might call the logical product of two string-valued
series, as in
series sv3 = sv1 ^ sv2
The result is another string-valued series with value si .sj at observations where sv1 has value si
and sv2 has value sj . For example, if at a given observation sv1 has value “A” and sv2 has value
“X”, then sv3 will have value “A.X”. The set of strings attached to the resulting series will include
all such string combinations even if they are not all represented in the given sample.
Assignment to an entire series

Other than the “assignment from array of strings” and “logical product” cases described above, this
is disallowed at present: you can’t execute an assignment with the name of a string-valued series
per se on the left-hand side. Put differently, you cannot overwrite an entire string-valued series at
once. While this is debatable, it’s the easiest way of ensuring that we never end up with a broken
mapping. It’s possible this restriction may be relaxed in future.
Besides assigning an out-of-bounds numerical value to a particular observation, this sort of assign-
ment is in fact the only operation that is banned for string-valued series.
Missing values
We support one exception to the general rule, never break the mapping between strings and nu-
meric codes for string-valued series: you can mark particular observations as missing. This is done
in the usual way, e.g.,
grade[31] = NA
Note, however, that on importing a string series from a delimited text file any non-blank strings (in-
cluding “NA”) will be interpreted as valid values; any missing values in such a file should therefore
be represented by blank cells.
Copying a string-valued series

If you make a copy of a string-valued series, as in
series foo = city
the string values are not copied over: you get a purely numerical series holding the codes of the
original series. But if you want a full copy with the string values that can easily be arranged:
series citycopy = city

stringify(citycopy, strvals(city))
1 Admittedly there is a downside to this feature: one may inadvertently add a new string value by mistyping a string
that’s already present.

String-valued series in other contexts

String-valued series can be used on the right-hand side of assignment statements at will, and in
that context their numerical values are taken. For example,
series y = sqrt(city)
will elicit no complaint and generate a numerical series 1, 1.41421, . . . . It’s up to the user to judge
whether this sort of thing makes any sense.
Similarly, it’s up to the user to decide if it makes sense to use a string-valued series “as is” in a
regression model, whether as regressand or regressor — again, the numerical values of the series
are taken. Often this will not make sense, but sometimes it may: the numerical values may by
design form an ordinal, or even a cardinal, scale (as in the “grade” example in section 16.2).
More likely, one would want to use dummify on a string-valued series before using it in statistical
modeling. In that context gretl’s series labels are suitably informative. For example, suppose we
have a series race with numerical values 1, 2 and 3 and associated strings “White”, “Black” and
“Other”. Then the hansl code
list D = dummify(race)
labels
will show these labels:
Drace_2: dummy for race = ’Black’

Drace_3: dummy for race = ’Other’
Given such a series you can use string values in a sample restriction, as in
smpl race == "Black" --restrict
(although race == 2 would also be acceptable).
Accessing string values

We have mentioned above two ways of accessing string values from a given series: via the syntax
seriesname[obs]
to obtain a single such value; and via the strvals() function to obtain an array holding all its
distinct values. Here we note a third option: direct assignment from a string-valued series to an
array of strings, as in
strings S = sv
where sv is a suitable series. In this case you get an array holding all the sv strings for observations
in the current sample range, not just the distinct values as with strvals.
16.4 String-valued series and functions

User-defined hansl functions can deal with string-valued series, although there are a few points to
note.
If you supply such a series as an argument to a hansl function its string values will be accessible
within the function. One can test whether a given series arg is string-valued as follows:
if nelem(strvals(arg)) > 0
# yes
else
# no
endif
Now suppose one wanted to put something like the code that generated the grade series in sec-
tion 16.2 into a function. That can be done, but not in the form of a function that directly returns
the desired series—that is, something like
function series letter_grade (series x)

series grade
# define grade based on x and stringify it, as shown above
return grade
end function
Unfortunately the above will not work: the caller will get the grade series OK but it won’t be string-
valued. At first sight this may seem to be a bug but it’s defensible as a consequence of the way
series work in gretl.
The point is that series have, so to speak, two grades of existence. They can exist as fully-fledged
members of a dataset, or they can have a fleeting existence as simply anonymous arrays of numbers
that are of the same length as dataset series. Consider the statement
series rootx1 = sqrt(x+1)
On the right-hand side we have the “series” x+1, which is called into existence as part of a calcula-
tion but has no name and cannot have string values. Similarly, consider
series grade = letter_grade(x)
The return value from letter_grade() is likewise an anonymous array,2 incapable of holding
string values until it gets assigned to the named series grade. The solution is to define grade as a
series, at the level of the caller, before calling letter_grade(), as in
function void letter_grade (series x, series *grade)

# define grade based on x and stringify it
# this version will work!
end function
# caller
...
series grade
letter_grade(x, &grade)
As you’ll see from the account above, we don’t offer any very fancy facilities for string-valued
series. We’ll read them from suitable sources and we’ll create them natively via stringify— and
we’ll try to ensure that they retain their integrity — but we don’t, for example, take the specification
of a string-valued series as a regressor as an implicit request to include the dummification of its
distinct values. Besides laziness, this reflects the fact that in gretl a string-valued series may be
usable “as is”, depending on how it’s defined; you can use dummify if you need it.
16.5 Other import formats

In section 16.2 we illustrated the reading of string-valued series with reference to a delimited text
data file. Gretl can also handle several other sources of string-valued data, including the spread-
sheet formats xls, xlsx, gnumeric and ods and (to a degree) the formats of Stata, SAS and SPSS.
2 A proper named series, with string values, existed while the function was executing but it ceased to exist as soon as
the function was finished.

Stata files
Stata supports two relevant sorts of variables: (1) those that are of “string type” and (2) variables
of one or other numeric type that have “value labels” defined. Neither of these is exactly equivalent
to what we call a “string-valued series” in gretl.
Stata variables of string type have no numeric representation; their values are literally strings, and
that’s all. Stata’s numeric variables with value labels do not have to be integer-valued and their
least value does not have to be 1; however, you can’t define a label for a value that is not an integer.
Thus in Stata you can have a series that comprises both integer and non-integer values, but only
the integer values can be labeled.3
This means that on import to gretl we can readily handle variables of string type from Stata’s dta
files. We give them a 1-based numeric encoding; this is arbitrary but does not conflict with any
information in the dta file. On the other hand, in general we’re not able to handle Stata’s numeric
variables with value labels; currently we report the value labels to the user but do not attempt to
store them in the gretl dataset. We could check such variables and import them as string-valued
series if they satisfy the criteria stated in section 16.2 but we don’t at present.
SAS and SPSS files

Gretl is able to read and preserve string values associated with variables from SAS “export” (xpt)
files, and also from SPSS sav files. Such variables seem to be on the same pattern as Stata variables
of string type.
3 Verified in Stata 12.

Chapter 17
Matrix manipulation
Together with the other two basic types of data (series and scalars), gretl offers a quite compre-
hensive array of matrix methods. This chapter illustrates the peculiarities of matrix syntax and
discusses briefly some of the more advanced matrix functions. For a full listing of matrix functions
and a comprehensive account of their syntax, please refer to the Gretl Command Reference.
In this chapter we’re concerned with real matrices; most of the points made here also apply to
complex matrices but see the following chapter for additional specifics on the complex case.
17.1 Creating matrices

Matrices can be created using any of these methods:
1. By direct specification of the scalar values that compose the matrix — either in numerical form,
or by reference to pre-existing scalar variables, or using computed values.
2. By providing a list of data series.
3. By providing a named list of series.
4. Via a suitable expression that references existing matrices and/or scalars, or via some special
functions.
To specify a matrix directly in terms of scalars, the syntax is, for example:
matrix A = {1, 2, 3 ; 4, 5, 6}
The matrix is defined by rows; the elements on each row are separated by commas and the rows
are separated by semi-colons. The whole expression must be wrapped in braces. Spaces within the
braces are not significant. The above expression defines a 2 × 3 matrix. Each element should be a
numerical value, the name of a scalar variable, or an expression that evaluates to a scalar. Directly
after the closing brace you can append a single quote (’) to obtain the transpose.
To specify a matrix in terms of data series the syntax is, for example,
matrix A = {x1, x2, x3}
where the names of the variables are separated by commas. Besides names of existing variables,
you can use expressions that evaluate to a series. For example, given a series x you could do
matrix A = {x, x^2}
Each variable occupies a column (and there can only be one variable per column). You cannot use
the semicolon as a row separator in this case: if you want the series arranged in rows, append the
transpose symbol. The range of data values included in the matrix depends on the current setting
of the sample range.
Instead of giving an explicit list of variables, you may instead provide the name of a saved list (see
Chapter 15), as in
138
Chapter 17. Matrix manipulation 139
matrix A = {xlist}
When you provide a named list, the data series are by default placed in columns, as is natural in an
econometric context: if you want them in rows, append the transpose symbol.
As a special case of constructing a matrix from a list of variables, you can say
matrix A = {dataset}
This builds a matrix using all the series in the current dataset, apart from the constant (variable 0).
When this dummy list is used, it must be the sole element in the matrix definition {...}. You can,
however, create a matrix that includes the constant along with all other variables using horizontal
concatenation (see below), as in
matrix A = {const}~{dataset}
By default, when you build a matrix from series that include missing values the data rows that
contain NAs are skipped. But you can modify this behavior via the command set skip_missing
off. In that case NAs are converted to NaN (“Not a Number”). In the IEEE floating-point stan-
dard, arithmetic operations involving NaN always produce NaN. Alternatively, you can take greater
control over the observations (data rows) that are included in the matrix using the “set” variable
matrix_mask, as in
set matrix_mask msk
where msk is the name of a series. Subsequent commands that form matrices from series or lists will
include only observations for which msk has non-zero (and non-missing) values. You can remove
this mask via the command set matrix_mask null.
☞ Names of matrices must satisfy the same requirements as names of gretl variables in general: the name
can be no longer than 31 characters, must start with a letter, and must be composed of nothing but letters,
numbers and the underscore character.
17.2 Empty matrices

The syntax
matrix A = {}
creates an empty matrix—a matrix with zero rows and zero columns.
The main purpose of the concept of an empty matrix is to enable the user to define a starting point
for subsequent concatenation operations. For instance, if X is an already defined matrix of any size,
the commands
matrix A = {}
matrix B = A ~ X
result in a matrix B identical to X.

From an algebraic point of view, one can make sense of the idea of an empty matrix in terms of
vector spaces: if a matrix is an ordered set of vectors, then A={} is the empty set. As a consequence,
operations involving addition and multiplications don’t have any clear meaning (arguably, they have
none at all), but operations involving the cardinality of this set (that is, the dimension of the space
spanned by A) are meaningful.
Function Return value Function Return value

A’, transp(A) A rows(A) 0
cols(A) 0 rank(A) 0
det(A) NA ldet(A) NA
tr(A) NA onenorm(A) NA
infnorm(A) NA rcond(A) NA
Table 17.1: Valid functions on an empty matrix, A
Legal operations on empty matrices are listed in Table 17.1. (All other matrix operations gener-
ate an error when an empty matrix is given as an argument.) In line with the above interpreta-
tion, some matrix functions return an empty matrix under certain conditions: the functions diag,
vec, vech, unvech when the arguments is an empty matrix; the functions I, ones, zeros,
mnormal, muniform when one or more of the arguments is 0; and the function nullspace when
its argument has full column rank.
17.3 Selecting submatrices

You can select submatrices of a given matrix using the syntax
A[rows,cols]
where rows can take any of these forms:
1. empty selects all rows

2. a single integer selects the single specified row
3. two integers separated by a colon selects a range of rows
4. the name of a matrix selects the specified rows
With regard to option 2, the integer value can be given numerically, as the name of an existing
scalar variable, or as an expression that evaluates to a scalar. With option 4, the index matrix given
in the rows field must be either p × 1 or 1 × p, and should contain integer values in the range 1 to
n, where n is the number of rows in the matrix from which the selection is to be made.
The cols specification works in the same way, mutatis mutandis. Here are some examples.
matrix B = A[1,]
matrix B = A[2:3,3:5]
matrix B = A[2,2]
matrix idx = {1, 2, 6}
matrix B = A[idx,]
The first example selects row 1 from matrix A; the second selects a 2×3 submatrix; the third selects
a scalar; and the fourth selects rows 1, 2, and 6 from matrix A.
If the matrix in question is n × 1 or 1 × m, it is OK to give just one index specifier and omit the
comma. For example, A[2] selects the second element of A if A is a vector. Otherwise the comma
is mandatory.
In addition there are some predefined index specifications, represented by the keywords diag,
lower, upper, real, imag and end. With the exception of end, these keywords imply specific row
and column selections, and therefore cannot be combined with any additional, comma-separated
term.
• The diag specification selects the principal diagonal of a matrix.

• lower and upper select, respectively, the elements of a matrix below and those above the
principal diagonal.
• real and imag are specific to complex matrices and are described in chapter 18.
• end selects the last element in a given row or column. It can be employed in arithmetical
expressions, so for example end-1 accesses the second-last element in a row or column.
You can use submatrix selections on either the right-hand side of a matrix-generating formula or
the left. Here is an example of use of a selection on the right, to extract a 2 × 2 submatrix B from a
3 × 3 matrix A, then the lower triangle of A:
matrix A = {1, 2, 3; 4, 5, 6; 7, 8, 9}
matrix B = A[1:2,2:3]
matrix C = A[lower]
And here are examples of selection on the left. The second line below writes a 2 × 2 identity matrix
into the bottom right corner of the 3 × 3 matrix A. The fourth line replaces the diagonal of A with
1s.
matrix A = {1, 2, 3; 4, 5, 6; 7, 8, 9}
matrix A[2:3,2:3] = I(2)
matrix d = {1, 1, 1}
matrix A[diag] = d
When the lower and upper selections are used on the right, they yield a vector holding the elements
in their scope. The ordering of the elements is column-major in both cases, as illustrated below for
the 4 × 4 case.
d 1 2 4
1 d 3 5
2 4 d 6
3 5 6 d
This means that lower and upper do not produce the same result for symmetric matrices bigger
than 3 × 3, which may seem unfortunate, but it gives the user a degree of flexibility in respect of the
ordering of the elements. Suppose you have a non-symmetric matrix M and you’d like to extract
the infradiagonal elements in row-major order: (M’)[upper] will do the job.
When lower and upper are used on the left, the replacement must be either (a) a vector of length
equal to the number of elements in the selection or (b) a scalar value. In case (a) the elements of
the target matrix are filled in column-major order; in case (b) they are all set using the scalar.
One possible use of these tools is taking (say) a lower triangular matrix and rendering it symmetric
by copying the elements from beneath the diagonal to above. The way to get this right (assuming
you have a lower triangular matrix L) is
L[upper] = (L’)[upper] # note: not L[upper] = L[lower]
17.4 Deleting rows or columns

A variant of submatrix notation is available for convenience in dropping specified rows and/or
columns from a matrix, namely giving negative values for the indices. Here is a simple example,
matrix A = {1, 2, 3; 4, 5, 6; 7, 8, 9}
matrix B = A[-2,-3]
which creates B as a 2 × 2 matrix which drops row 2 and column 3 from A. Negative indices can also
be given in the form of an index vector:
matrix rdrop = {-1,-3,-5}

matrix B = A[rdrop,]
In this case B is formed by dropping rows 1, 3 and 5 from A (which must have at least 5 rows), but
retaining the column dimension of A.
There are two limitations on the use of negative indices. First, the from:to range syntax described
in the previous section is not available, but you can use the seq function to achieve an equivalent
effect, as in
matrix A = muniform(1, 10)

matrix B = A[,-seq(3,7)]
where B drops columns 3 to 7 from A. Second, use of negative indices is valid only on the right-hand
side of a matrix calculation; there is no “negative index” equivalent of assignment to a submatrix,
as in
A[1:3,] = ones(3, cols(A))
17.5 Matrix operators

The following binary operators are available for matrices:
+ addition
- subtraction
* ordinary matrix multiplication
’ pre-multiplication by transpose
\ matrix “left division” (see below)
/ matrix “right division” (see below)
~ column-wise concatenation
| row-wise concatenation
** Kronecker product
== test for equality
!= test for inequality
In addition, the following operators (“dot” operators) apply on an element-by-element basis:
.+ .- .* ./ .^ .= .> .< .>= .<= .!=
Here are explanations of the less obvious cases.

For matrix addition and subtraction, in general the two matrices have to be of the same dimensions
but an exception to this rule is granted if one of the operands is a 1 × 1 matrix or scalar. The scalar
is implicitly promoted to the status of a matrix of the correct dimensions, all of whose elements
are equal to the given scalar value. For example, if A is an m × n matrix and k a scalar, then the
commands
matrix C = A + k
matrix D = A - k
both produce m × n matrices, with elements cij = aij + k and dij = aij − k respectively.
By “pre-multiplication by transpose” we mean, for example, that
matrix C = X’Y
produces the product of X-transpose and Y . In effect, the expression X’Y is shorthand for X’*Y,
which is also valid syntax. In the special case X = Y , however, the two are not exactly equivalent.
The former expression uses a specialized algorithm with two advantages: it is more efficient com-
putationally, and ensures that the result is free of machine precision artifacts that may render it
numerically non-symmetric. This, however, is unlikely to be an issue unless your X matrix is rather
large (at least several hundreds rows/columns).
In matrix “left division”, the statement
matrix X = A \ B
is interpreted as a request to find the matrix X that solves AX = B. If A is a square matrix, this is
in principle equivalent to A−1 B, which fails if A is singular; the numerical method employed here
is the LU decomposition. If A is a T × k matrix with T > k, then X is the least-squares solution,
X = (A′ A)−1 A′ B, which fails if A′ A is singular; the numerical method employed here is the QR
decomposition. Otherwise, the operation necessarily fails.
For matrix “right division”, as in X = A / B, X is the matrix that solves XB = A, in principle
equivalent to AB −1 .
In “dot” operations a binary operation is applied element by element; the result of this operation
is obvious if the matrices are of the same size. However, there are several other cases where such
operators may be applied. For example, if we write
matrix C = A .- B
then the result C depends on the dimensions of A and B. Let A be an m × n matrix and let B be
p × q; the result is as follows:
Case Result
Dimensions match (m = p and n = q) cij = aij − bij
A is a column vector; rows match (m = p; n = 1) cij = ai − bij
B is a column vector; rows match (m = p; q = 1) cij = aij − bi
A is a row vector; columns match (m = 1; n = q) cij = aj − bij
B is a row vector; columns match (m = p; q = 1) cij = aij − bj
A is a column vector; B is a row vector (n = 1; p = 1) cij = ai − bj
A is a row vector; B is a column vector (m = 1; q = 1) cij = aj − bi
A is a scalar (m = 1 and n = 1) cij = a − bij
B is a scalar (p = 1 and q = 1) cij = aij − b
If none of the above conditions are satisfied the result is undefined and an error is flagged.
Note that this convention makes it unnecessary, in most cases, to use diagonal matrices to perform
transformations by means of ordinary matrix multiplication: if Y = XV , where V is diagonal, it is
computationally much more convenient to obtain Y via the instruction
matrix Y = X .* v
where v is a row vector containing the diagonal of V .

In column-wise concatenation of an m×n matrix A and an m×p matrix B, the result is an m×(n+p)
matrix. That is,
matrix C = A ~ B
h i
produces C = A B .
Row-wise concatenation of an m × n matrix A and an p × n matrix B produces an (m + p) × n
matrix. That is,
matrix C = A | B
" #
A
produces C = .
B
17.6 Matrix–scalar operators

For matrix A and scalar k, the operators shown in Table 17.2 are available. (Addition and subtrac-
tion were discussed in section 17.5 but we include them in the table for completeness.) In addition,
for square A and scalar x, B = A^x produces a matrix B which is A raised to the power x, but only
if either of two conditions are satisfied. First, if x is a non-negative integer then Golub and Van
Loan’s “Binary Powering” Algorithm 11.2.2 is used — see Golub and Van Loan (1996) — and A can
then be a generic square matrix. Second, if A is positive semidefinite the power is computed via its
eigen-decomposition and x can be a real number, subject to the constraint that x can be negative
only if A is invertible.
Expression Effect
matrix B = A * k bij = kaij
matrix B = A / k bij = aij /k
matrix B = k / A bij = k/aij
matrix B = A + k bij = aij + k
matrix B = A - k bij = aij − k
matrix B = k - A bij = k − aij
matrix B = A % k bij = aij modulo k
Table 17.2: Matrix–scalar operators
17.7 Matrix functions

Most of the functions available for scalars and series also apply to matrices on an element-by-
element basis. This is the case for log, exp, sqrt, sin and many others. For example, if a matrix A
is already defined, then
matrix B = sqrt(A)
√
generates a matrix such that bij = aij . All such functions require a single matrix as argument, or
an expression which evaluates to a single matrix.1
In this section, we review some aspects of functions that apply specifically to matrices. A full
account of each function is available in the Gretl Command Reference.
1 Note that to find the “matrix square root” you need the cholesky function (see below). And since the exp function
computes the exponential element by element, it does not return the matrix exponential unless the matrix is diagonal.
To get the matrix exponential, use mexp.
Matrix manipulation
cnameset cols diag diagcat halton I
lower mlag mnormal mrandgen mreverse mshape
msortby msplitby muniform ones rnameset rows
selifc selifr seq trimr unvech upper
vec vech zeros
Matrix algebra
cholesky cnumber commute conv2d det eigen
eigengen eigensym eigsolve fft ffti ginv
hdprod infnorm inv invpd ldet Lsolve
mexp mlog nullspace onenorm psdroot qform
qrdecomp rank rcond svd toepsolv tr
transp
Statistics/transformations
aggregate bkw corr cov ecdf fcstats
ghk gini imaxc imaxr iminc iminr
kpsscrit maxc maxr mcorr mcov mcovg
meanc meanr minc minr mols mpols
mrls mxtab normtest npcorr princomp prodc
prodr quadtable quantile ranking resample sdc
sphericorrsumc sumr uniq values
Numerical methods
BFGSmax BFGScmax fdjac fzero GSSmax NMmax
NRmax numhess simann
Table 17.3: Matrix functions by category

Matrix reshaping
In addition to the methods discussed in sections 17.1 and 17.3, a matrix can also be created by
re-arranging the elements of a pre-existing matrix. This is accomplished via the mshape function.
It takes three arguments: the input matrix, A, and the rows and columns of the target matrix, r
and c respectively. Elements are read from A and written to the target in column-major order. If A
contains fewer elements than n = r × c, they are repeated cyclically; if A has more elements, only
the first n are used.
For example:
matrix a = mnormal(2,3)
a
matrix b = mshape(a,3,1)
b
matrix b = mshape(a,5,2)
b
produces
? a
a
1.2323 0.99714 -0.39078

0.54363 0.43928 -0.48467
? matrix b = mshape(a,3,1)
Generated matrix b
? b
b
1.2323
0.54363
0.99714
? matrix b = mshape(a,5,2)
Replaced matrix b
? b
b
1.2323 -0.48467
0.54363 1.2323
0.99714 0.54363
0.43928 0.99714
-0.39078 0.43928
Multiple returns and the null keyword

Some functions take one or more matrices as arguments and compute one or more matrices; these
are:
eigensym Eigen-analysis of symmetric matrix

eigen Eigen-analysis of general matrix
mols Matrix OLS
qrdecomp QR decomposition
svd Singular value decomposition (SVD)
The general rule is: the “main” result of the function is always returned as the result proper.
Auxiliary returns, if needed, are retrieved using pre-existing matrices, which are passed to the
function as pointers (see 14.4). If such values are not needed, the pointer may be substituted with
the keyword null.
The syntax for qrdecomp and eigensym is of the form
matrix B = func(A, &C)
The first argument, A, represents the input data, that is, the matrix whose decomposition or analysis
is required. The second argument must be either the name of an existing matrix preceded by & (to
indicate the “address” of the matrix in question), in which case an auxiliary result is written to that
matrix, or the keyword null, in which case the auxiliary result is not produced.
In case a non-null second argument is given, the specified matrix will be over-written with the
auxiliary result. (It is not required that the existing matrix be of the right dimensions to receive the
result.)
The function eigensym computes the eigenvalues, and optionally the right eigenvectors, of a sym-
metric n × n matrix. The eigenvalues are returned directly in a column vector of length n; if the
eigenvectors are required, they are returned in an n × n matrix. For example:
matrix V = {}
matrix E = eigensym(M, &V)
matrix E = eigensym(M, null)
In the first case E holds the eigenvalues of M and V holds the eigenvectors. In the second, E holds
the eigenvalues but the eigenvectors are not computed.
The function eigen computes the eigenvalues, and optionally the right and/or left eigenvectors,
of a general n × n matrix.2 Following the input matrix argument there are two slots for matrix-
addresses, the first to retrieve the right eigenvectors and the second for the left. Calls to this
function should therefore conform to one of the following patterns.
# get the eigenvalues only

matrix E = eigen(M)
# get the right eigenvectors as well

matrix V = {}
matrix E = eigen(M, &V)
# get both sets of eigenvectors

matrix V = {}
matrix W = {}
matrix E = eigen(M, &V, &W)
# get the left eigenvectors but not the right

matrix W = {}
matrix E = eigen(M, null, &W)
The eigenvalues are returned directly in a complex n-vector. If the eigenvectors are wanted they
are returned in a n × n complex matrix.
The qrdecomp function computes the QR decomposition of an m × n matrix A: A = QR, where Q
is an m × n orthogonal matrix and R is an n × n upper triangular matrix. The matrix Q is returned
directly, while R can be retrieved via the second argument. Here are two examples:
matrix R
matrix Q = qrdecomp(M, &R)
matrix Q = qrdecomp(M, null)
2 The “legacy” function eigengen used to be the way to do this prior to gretl 2019d.
In the first example, the triangular R is saved as R; in the second, R is discarded. The first line
above shows an example of a “simple declaration” of a matrix: R is declared to be a matrix variable
but is not given any explicit value. In this case the variable is initialized as a 1 × 1 matrix whose
single element equals zero.
The syntax for svd is
matrix B = func(A, &C, &D)
The function svd computes all or part of the singular value decomposition of the real m × n matrix
A. Let k = min(m, n). The decomposition is
A = U ΣV ′
where U is an m × k orthogonal matrix, Σ is an k × k diagonal matrix, and V is an k × n orthogonal

matrix.3 The diagonal elements of Σ are the singular values of A; they are real and non-negative,
and are returned in descending order. The first k columns of U and V are the left and right singular
vectors of A.
The svd function returns the singular values, in a vector of length k. The left and/or right singu-
lar vectors may be obtained by supplying non-null values for the second and/or third arguments
respectively. For example:
matrix s = svd(A, &U, &V)

matrix s = svd(A, null, null)
matrix s = svd(A, null, &V)
In the first case both sets of singular vectors are obtained, in the second case only the singular
values are obtained; and in the third, the right singular vectors are obtained but U is not computed.
Please note: when the third argument is non-null, it is actually V ′ that is provided. To reconstitute
the original matrix from its SVD, one can do:
matrix s = svd(A, &U, &V)

matrix B = (U.*s)*V
Finally, the syntax for mols is
matrix B = mols(Y, X, &U)
This function returns the OLS estimates obtained by regressing the T × n matrix Y on the T × k
matrix X, that is, a k × n matrix holding (X ′ X)−1 X ′ Y . The Cholesky decomposition is used. The
matrix U , if not null, is used to store the residuals.
Reading and writing matrices from/to text files

The two functions mread and mwrite can be used for basic matrix input/output. This can be useful
to enable gretl to exchange data with other programs.
The mread function accepts one string parameter: the name of the (plain text) file from which the
matrix is to be read. The file in question may start with any number of comment lines, defined
as lines that start with the hash mark, “#”; such lines are ignored. Beyond that, the content must
conform to the following rules:
1. The first non-comment line must contain two integers, separated by a space or a tab, indicat-
ing the number of rows and columns, respectively.
3 This is not the only definition of the SVD: some writers define U as m × m, Σ as m × n (with k non-zero diagonal
elements) and V as n × n.
2. The columns must be separated by spaces or tab characters.
3. The decimal separator must be the dot “.” character.
Should an error occur (such as the file being badly formatted or inaccessible), an empty matrix (see
section 17.2) is returned.
The complementary function mwrite produces text files formatted as described above. The column
separator is the tab character, so import into spreadsheets should be straightforward. Usage is
illustrated in example 17.1. Matrices stored via the mwrite command can be easily read by other
programs; the following table summarizes the appropriate commands for reading a matrix A from
a file called a.mat in some widely-used programs.4 Note that the Python example requires that the
numpy module is loaded.
Program Sample code

GAUSS tmp[] = load a.mat;
A = reshape(tmp[3:rows(tmp)],tmp[1],tmp[2]);
Octave fd = fopen("a.mat");
[r,c] = fscanf(fd, "%d %d", "C");
A = reshape(fscanf(fd, "%g", r*c),c,r)’;
fclose(fd);
Ox decl A = loadmat("a.mat");
R A <- as.matrix(read.table("a.mat", skip=1))
Python A = numpy.loadtxt(’a.mat’, skiprows=1)
Julia A = readdlm("a.mat", skipstart=1)
Optionally, the mwrite and mread functions can use gzip compression: this is invoked if the name
of the matrix file has the suffix “.gz.” In this case the elements of the matrix are written in a single
column. Note, however, that compression should not be applied when writing matrices for reading
by third-party software unless you are sure that the software can handle compressed data.
17.8 Matrix accessors

In addition to the matrix functions discussed above, various “accessor” strings allow you to create
copies of internal matrices associated with models previously estimated. These are set out in
Table 17.4.
Many of the accessors in Table 17.4 behave somewhat differently depending on the sort of model
that is referenced, as follows:
• Single-equation models: $sigma gets a scalar (the standard error of the regression); $coeff
and $stderr get column vectors; $uhat and $yhat get series.
• System estimators: $sigma gets the cross-equation residual covariance matrix; $uhat and
$yhat get matrices with one column per equation. The format of $coeff and $stderr de-
pends on the nature of the system: for VARs and VECMs (where the matrix of regressors is
the same for all equations) these return matrices with one column per equation, but for other
system estimators they return a big column vector.
• VARs and VECMs: $vcv is not available, but X ′ X −1 (where X is the common matrix of regres-
sors) is available as $xtxinv, such that for VARs and VECMs (without restrictions on α) a vcv
equivalent can be easily and efficiently constructed as $sigma ** $xtxinv.
4 Matlab users may find the Octave example helpful, since the two programs are mostly compatible with one another.
Listing 17.1: Matrix input/output via text files [Download ▼]
nulldata 64
scalar n = 3
string f1 = "a.csv"
string f2 = "b.csv"
matrix a = mnormal(n,n)
matrix b = inv(a)
err = mwrite(a, f1)
if err != 0
fprintf "Failed to write %s\n", f1
else
err = mwrite(b, f2)
endif
if err != 0
fprintf "Failed to write %s\n", f2
else
c = mread(f1)
d = mread(f2)
a = c*d
printf "The following matrix should be an identity matrix\n"
print a
endif
$coeff matrix of estimated coefficients

$compan companion matrix (after VAR or VECM estimation)
$jalpha matrix α (loadings) from Johansen’s procedure
$jbeta matrix β (cointegration vectors) from Johansen’s procedure
$jvbeta covariance matrix for the unrestricted elements of β from Johansen’s procedure
$rho autoregressive coefficients for error process
$sigma residual covariance matrix
$stderr matrix of estimated standard errors
$uhat matrix of residuals
$vcv covariance matrix of parameter estimates
$vma VMA matrices in stacked form (see section 32.2)
$yhat matrix of fitted values
Table 17.4: Matrix accessors for model data

If the accessors are given without any prefix, they retrieve results from the last model estimated, if
any. Alternatively, they may be prefixed with the name of a saved model plus a period (.), in which
case they retrieve results from the specified model. Here are some examples:
matrix u = $uhat
matrix b = m1.$coeff
matrix v2 = m1.$vcv[1:2,1:2]
The first command grabs the residuals from the last model; the second grabs the coefficient vector
from model m1; and the third (which uses the mechanism of submatrix selection described above)
grabs a portion of the covariance matrix from model m1.
If the model in question a VAR or VECM (only) $compan and $vma return the companion matrix and
the VMA matrices in stacked form, respectively (see section 32.2 for details). After a vector error
correction model is estimated via Johansen’s procedure, the matrices $jalpha and $jbeta are also
available. These have a number of columns equal to the chosen cointegration rank; therefore, the
product
matrix Pi = $jalpha * $jbeta’
returns the reduced-rank estimate of A(1). Since β is automatically identified via the Phillips nor-
malization (see section 33.5), its unrestricted elements do have a proper covariance matrix, which
can be retrieved through the $jvbeta accessor.
17.9 Namespace issues

Matrices share a common namespace with data series and scalar variables. In other words, no two
objects of any of these types can have the same name. It is an error to attempt to change the type
of an existing variable, for example:
scalar x = 3
matrix x = ones(2,2) # wrong!
It is possible, however, to delete or rename an existing variable then reuse the name for a variable
of a different type:
scalar x = 3
delete x
matrix x = ones(2,2) # OK
17.10 Creating a data series from a matrix

Section 17.1 above describes how to create a matrix from a data series or set of series. You may
sometimes wish to go in the opposite direction, that is, to copy values from a matrix into a regular
data series. The syntax for this operation is
series sname = mspec
where sname is the name of the series to create and mspec is the name of the matrix to copy from,
possibly followed by a matrix selection expression. Here are two examples.
series s = x
series u1 = U[,1]
It is assumed that x and U are pre-existing matrices. In the second example the series u1 is formed
from the first column of the matrix U.
For this operation to work, the matrix (or matrix selection) must be a vector with length equal to
either the full length of the current dataset, n, or the length of the current sample range, n′ . If
n′ < n then only n′ elements are drawn from the matrix; if the matrix or selection comprises n
elements, the n′ values starting at element t1 are used, where t1 represents the starting observation
of the sample range. Any values in the series that are not assigned from the matrix are set to the
missing code.
17.11 Matrices and lists

To facilitate the manipulation of named lists of variables (see Chapter 15), it is possible to convert
between matrices and lists. In section 17.1 above we mentioned the facility for creating a matrix
from a list of variables, as in
matrix M = { listname }
That formulation, with the name of the list enclosed in braces, builds a matrix whose columns hold
the variables referenced in the list. What we are now describing is a different matter: if we say
matrix M = listname
(without the braces), we get a row vector whose elements are the ID numbers of the variables in the
list. This special case of matrix generation cannot be embedded in a compound expression. The
syntax must be as shown above, namely simple assignment of a list to a matrix.
To go in the other direction, you can include a matrix on the right-hand side of an expression that
defines a list, as in
list Xl = M
where M is a matrix. The matrix must be suitable for conversion; that is, it must be a row or column
vector containing non-negative integer values, none of which exceeds the highest ID number of a
series in the current dataset.
Listing 17.2 illustrates the use of this sort of conversion to “normalize” a list, moving the constant
(variable 0) to first position.
17.12 Deleting a matrix

To delete a matrix, just write
delete M
where M is the name of the matrix to be deleted.
17.13 Printing a matrix

To print a matrix, the easiest way is to give the name of the matrix in question on a line by itself,
which is equivalent to using the print command:
matrix M = mnormal(100,2)
M
print M
You can get finer control on the formatting of output by using the printf command, as illustrated
in the interactive session below:
Listing 17.2: Manipulating a list [Download ▼]
function void normalize_list (matrix *x)

# If the matrix (representing a list) contains var 0,
# but not in first position, move it to first position
if (x[1] != 0)
scalar k = cols(x)
loop for (i=2; i<=k; i++)
if (x[i] == 0)
x[i] = x[1]
x[1] = 0
break
endif
endloop
endif
end function
open data9-7
list Xl = 2 3 0 4
matrix x = Xl
normalize_list(&x)
list Xl = x
list Xl print
? matrix Id = I(2)
matrix Id = I(2)
Generated matrix Id
? print Id
print Id
Id (2 x 2)
1 0
0 1
? printf "%10.3f", Id
1.000 0.000
0.000 1.000
For presentation purposes you may wish to give titles to the columns of a matrix. For this you can
use the cnameset function: the first argument is a matrix and the second is either a named list of
variables, whose names will be used as headings, or a string that contains as many space-separated
substrings as the matrix has columns. For example,
? matrix M = mnormal(3,3)
? cnameset(M, "foo bar baz")
? print M
M (3 x 3)
foo bar baz

1.7102 -0.76072 0.089406
-0.99780 -1.9003 -0.25123
-0.91762 -0.39237 -1.6114
17.14 Example: OLS using matrices

Listing 17.3 shows how matrix methods can be used to replicate gretl’s built-in OLS functionality.
Listing 17.3: OLS via matrix methods [Download ▼]
open data4-1
matrix X = { const, sqft }
matrix y = { price }
matrix b = invpd(X’X) * X’y
print "estimated coefficient vector"
b
matrix u = y - X*b
scalar SSR = u’u
scalar s2 = SSR / (rows(X) - rows(b))
matrix V = s2 * inv(X’X)
V
matrix se = sqrt(diag(V))
print "estimated standard errors"
se
# compare with built-in function
ols price const sqft --vcv
Chapter 18
Complex matrices
18.1 Introduction
Native support for complex matrices was added to gretl in version 2019d.1 Not all of hansl’s
matrix functions accept complex input, but we have enabled a sizable subset of these functions
which should suffice for most econometric purposes.
Complex numbers are not used in most areas of econometrics, but there are a few notable ex-
ceptions: among these, complex numbers allow for an elegant treatment of univariate spectral
analysis of time series, and become indispensable if you consider multivariate spectral analysis —
see for example Shumway and Stoffer (2017). A more recent example is the numerical solution of
linear models with rational expectations, which are widely used in modern macroeconomics, for
which the complex Schur factorization has become the tool of choice (Klein, 2000).
A first point to note is that complex values are treated as a special case of the hansl matrix type;
there’s no complex type as such. Complex scalars fall under the matrix type as 1 × 1 matrices; the
hansl scalar type is only for real values (as is the series type). A 1 × 1 complex matrix should do
any work you might require of a complex scalar.
Before we proceed to the details of complex matrices in gretl, here’s a brief reminder of the relevant
concepts and notation. Complex numbers are pairs of the form a + b i where a and b are real
numbers and i is defined as the square root of −1: a is the real part and b the imaginary part.
One can specify a complex number either via a and b or in “polar” form. The latter pertains to the
complex plane, which has the real component on the horizontal axis and the imaginary component
on the vertical. The polar representation of a complex number is composed of the length r of
the ray from the origin to the point in question and the angle θ subtended between the positive
real axis and this ray, measured counter-clockwise in radians. In polar form the complex number
z = a + b i can be written as
z = |z| (cos θ + i sin θ) = |z| eiθ
√
where |z| = r = a2 + b2 and θ = tan−1 (b/a). The quantity |z| is known as the modulus of z,
and θ as its complex “argument” (or sometimes “phase”). The notation z̄ is used for the complex
conjugate of z: if z = a + b i, then z̄ = a − b i.
18.2 Creating a complex matrix

The standard constructor for complex matrices is the complex() function. This takes two argu-
ments, giving the real and imaginary parts respectively, and sticks them together, as in
C = complex(A, B)
Four cases are supported, as follows.
• A and B are both m × n real matrices Then C is an m × n complex matrix such that ckj =
akj + bkj i.
• A and B are both scalars: C is a 1 × 1 complex matrix such that c = a + b i.

1 Prior to that release gretl offered improvised support for some complex functionality; see section 18.7 for details.
155
Chapter 18. Complex matrices 156
• A is an m × n real matrix and B is a scalar: C is an m × n matrix such that ckj = akj + b i.
• A is a scalar and B is an m × n real matrix: C is an m × n matrix such that ckj = a + bkj i.
In addition, complex matrices may naturally arise as the result of certain computations.
With both real and complex matrices in circulation, one may wish to determine whether a particular
matrix is complex. The function iscomplex() can tell you. Passed an identifier, it returns non-zero
if it names a complex matrix, 0 if it names a real matrix, or NA otherwise. The non-zero return value
is either 1 or 2, with the following interpretation:
• 1 indicates that the matrix is “nominally complex” (each element is represented as having a
real part and an imaginary part) but all imaginary parts are zero.
• 2 indicates that at least one element has a non-zero imaginary part.
The following code snippet illustrates the point.
matrix z1 = complex(1,0)
scalar a = iscomplex(z1)
matrix z2 = complex(1,1)
scalar b = iscomplex(z2)
printf "a = %d, b = %d\n", a, b
The code above gives
a = 1, b = 2
18.3 Indexation
Indexation of complex matrices works as with real matrices, on the understanding that each ele-
ment of a complex matrix is a complex pair. So for example C[i,j] gets you the complex pair at
row i, column j of C, in the form of a 1 × 1 complex matrix.
If you wish to access just the real or imaginary part of a given element, or range of elements, you
can use the functions Re() or Im(), as in
scalar rij = Re(C[i,j])
which gets you the real part of cij .

In addition the dummy selectors real and imag can be used to assign to just the real or imaginary
component of a complex matrix. Here are two examples:
# replace the real part of C with random normals

C[real] = mnormal(rows(C), cols(C))
# set the imaginary part of C to all zeros

C[imag] = 0
The replacement must be either a real matrix of the same dimensions as the target, or a scalar.
Further, the real and imag selectors may be combined with regular selectors to access specific
portions of a complex matrix for either reading or writing. Examples:
# retrieve the real part of a submatrix of C

matrix R = C[1:2,1:2][real]
# set the imaginary part of C[3,3] to y

C[3,3][imag] = y
18.4 Operators
Most of the operators available for working with real matrices are also available for complex ones;
this includes the “dot-operators” which work element-wise or by “broadcasting” vectors. Moreover,
mixed operands are accepted, as in D = C + A where C is complex and A real; the result, D, will be
complex. In such cases the real operand is treated as a complex matrix with an all-zero imaginary
part.
The operators not defined for complex values are:
• Those that include the inequality tests “>” or “<”, since complex values as such cannot be
compared as greater or lesser (though they can be compared as equal or not equal).
• The (real) modulus operator (percent sign), as in x % y which gives the remainder on division
of x by y.
As for real matrices, the transposition operator “’” is available in both unary form, as in B = A’,
and binary form, as in C = A’B (transpose-multiply). But note that for complex A this means the
conjugate transpose, AH . If you need the non-conjugated transpose you can use transp().
You may wish to note: although none of gretl’s explicit regression functions (or commands) accept
complex input you can calculate parameter estimates for a least-squares regression of complex Y
(T × 1) on complex X (T × k) via B = X \ Y.
18.5 Functions
To give an idea of what works, and what doesn’t, for complex matrices, we’ll walk through the hansl
function-space using the categories employed in gretl’s online “Function reference” (under the Help
menu in the GUI program).
Linear algebra
The functions that accept complex arguments are: cholesky, det, ldet, eigen, eigensym (for
Hermitian matrices), fft, ffti, inv, ginv, hdprod, mexp, mlog, qrdecomp, rank, svd, tr, and
transp. Note, however, that mexp and mlog require that the input matrix be diagonalizable, and
cholesky requires a positive definite Hermitian matrix.
In addition there are the complex-only functions ctrans, which gives the conjugate transpose,2
and schur for the Schur factorization.
Matrix building
Given what was said in section 18.2 above, several of the functions in this category should be
thought of as applying to the real or imaginary part of a complex matrix (for example, ones and
mnormal), and are of course usable in that way. However, some of these functions can be applied
to complex matrices as such, namely, diag, diagcat, lower, upper, vec, vech and unvech.
Please note: when unvech is applied to a suitable real vector it produces a symmetric matrix, but
when applied to a complex vector it produces a Hermitian matrix.
The only functions not available for complex matrices are cnameset and rnameset. That is, you
cannot name the columns or rows of such matrices (although this restriction could probably be
lifted without great difficulty).
2 The transp function gives the straight (non-conjugated) transpose of a complex matrix.
Matrix shaping
The functions that accept complex input are: cols, rows, mreverse, mshape, selifc, selifr and
trimr.
The functions msortby, sort and dsort are excluded for the reason mentioned in section 18.4.
Statistical
Supported for complex input: meanc, meanr, sumc, sumr, prodc and prodr. And that’s all.
Mathematical
In the matrix context, these are functions that are applied element by element. For complex input
the following are supported: log, exp and sqrt, plus all of the trigonometric functions with the
exception of atan2.
In addition there are the complex-only functions cmod (complex modulus, also accessible via abs),
carg (complex argument), conj (complex conjugate), Re (real part) and Im (imaginary part). Note
that carg(z) = atan2(y, x) for z = x + y i. Listing 18.1 illustrates usage of cmod and carg.
Transformations
In this category only two functions can be applied to complex matrices, namely cum and diff.
18.6 File input/output

Complex matrices are stored and retrieved correctly in the XML serialization used for gretl session
files (*.gretl).
The functions mwrite and mread work in two modes: binary mode if the filename ends with “.bin”
and text mode otherwise. Both modes handle complex matrices correctly if both the writing and
the reading are to be done by gretl, but for exchange of data with “foreign” programs text mode
will not work for complex matrices as a whole. The options are:
• In text mode, use mwrite and mread on the two parts of a complex matrix separately, and
reassemble the matrix in the target program.
• Use binary mode (on the whole matrix), if this is supported for the given foreign program.
At present binary mode transfer of complex matrices is supported for octave, python and julia.
Listing 18.2 shows some examples: we export a complex matrix to each of these programs in turn;
calculate its inverse in the foreign program; then verify that the result as imported back into gretl
is the same as that calculated in gretl.
18.7 Backward (in)compatibility

Prior to version 2019d gretl did not provide native support for complex matrices. It did, however,
offer an improvised representation of such matrices for certain restricted purposes, taking the
form of an expanded regular gretl matrix with real values and imaginary parts in odd- and even-
numbered columns, respectively. The functions fft, eigengen and polroots returned matrices in
this special form, and the functions cmult and cdiv operated on such matrices.
As of version 2022b, fft and polroots have been redefined to work with “proper” complex ma-
trices as described above. The other affected functions are deprecated and will be removed or
redefined in a subsequent release. If you have any hansl code using the legacy representation the
following brief porting guide may be helpful.
Listing 18.1: Variant representations of complex numbers. We picked 8 points on the unit circle in the
complex plane, so their modulus is constant and equal to 1. The Polar matrix below shows that the complex
argument is expressed in radians; multiplying by 180/π gives degrees. The chk matrix verifies that we can
retrieve the orginal representation of the complex values from the polar form in either of the two ways
mentioned at the start of the chapter: z = |z| (cos θ + i sin θ) or z = |z| eiθ . [Download ▼]
# complex values in a + b*i form

scalar rp5 = sqrt(0.5)
matrix A = {1, rp5, 0, -rp5, -1, -rp5, 0, rp5}’
matrix B = {0, rp5, 1, rp5, 0, -rp5, -1, -rp5}’
matrix Z = complex(A, B)
# calculate modulus and argument

matrix zmod = cmod(Z)
matrix theta = carg(Z)
matrix Polar = zmod ~ theta ~ (theta * 180/$pi)
cnameset(Polar, "modulus radians degrees")
printf "%12.4f\n", Polar
# reconstitute the original Z matrix in two ways

matrix Z1 = zmod .* complex(cos(theta), sin(theta))
matrix Z2 = zmod .* exp(complex(0, theta))
matrix chk = Z ~ Z1 ~ Z2
print chk
Printing of Polar and chk

modulus radians degrees
1.0000 0.0000 0.0000
1.0000 0.7854 45.0000
1.0000 1.5708 90.0000
1.0000 2.3562 135.0000
1.0000 3.1416 180.0000
1.0000 -2.3562 -135.0000
1.0000 -1.5708 -90.0000
1.0000 -0.7854 -45.0000
1.00000 + 0.00000i 1.00000 + 0.00000i 1.00000 + 0.00000i

0.70711 + 0.70711i 0.70711 + 0.70711i 0.70711 + 0.70711i
0.00000 + 1.00000i 0.00000 + 1.00000i 0.00000 + 1.00000i
-0.70711 + 0.70711i -0.70711 + 0.70711i -0.70711 + 0.70711i
-1.00000 + 0.00000i -1.00000 + 0.00000i -1.00000 + 0.00000i
-0.70711 - 0.70711i -0.70711 - 0.70711i -0.70711 - 0.70711i
0.00000 - 1.00000i 0.00000 - 1.00000i 0.00000 - 1.00000i
0.70711 - 0.70711i 0.70711 - 0.70711i 0.70711 - 0.70711i
Listing 18.2: Exporting and importing complex matrices [Download ▼]
set seed 34756

matrix C = complex(mnormal(3,3), mnormal(3,3))
D = inv(C)
mwrite(C, "C.bin", 1)
foreign language=octave
C = gretl_loadmat(’C.bin’);
gretl_export(inv(C), ’oct_D.bin’);
end foreign
oct_D = mread("oct_D.bin", 1)
eval D - oct_D
foreign language=python
import numpy as np
C = gretl_loadmat(’C.bin’)
gretl_export(np.linalg.inv(C), ’py_D.bin’)
end foreign
py_D = mread("py_D.bin", 1)
eval D - py_D
foreign language=julia
C = gretl_loadmat("C.bin")
gretl_export(inv(C), "jl_D.bin")
end foreign
jl_D = mread("jl_D.bin", 1)
eval D - jl_D
Porting old complex code

cmult and cdiv: These functions performed element-wise multiplication and division of complex
column vectors in the old two-column form. The statements
# old element-wise operations

c1 = cmult(a1, b1)
d1 = cdiv(a1, b1)
can be updated as
# new element-wise operations

c2 = a2 .* b2
d2 = a2 ./ b2
(where a2 and b2 are new-style complex vectors or matrices). The following statements
c3 = a2 * b2
d3 = a2 / b2
are also valid but have different effects, the first performing standard (rather than element-wise)
multiplication of matrices (complex or real) and the second performing “right division”, equivalent
to a2 * inv(b2). Note that while the return value from cmult and cdiv could be either a real
vector or a (two column) complex vector, the new-style operations yield a nominally complex result
if at least one of the operands is complex, even if the result has an all-zero imaginary part.
A piece of code that appears in some contexts (such as calculation of a periodogram) is as follows:
given a complex vector, v, compute a vector w holding the squared moduli of the elements of v.
The old-style code to accomplish this was
# legacy: v has two columns

w = sumr(v.^2)
and the new replacement is
# current: v has a single complex column

w = abs(v).^2
where abs gives the complex modulus.

eigengen: Most uses of this legacy function simply retrieve the eigenvalues of a general (that is,
not symmetric) matrix, and do not exploit the option of retrieving eigenvectors. In that context it is
straightforward to substitute a call to the new function eigen. The only point to note is that eigen
returns a new-style complex vector; if you have need to convert this to the legacy representation
you can use the cswitch function, which is documented in the Gretl Command Reference. In brief,
the following code gives you the legacy equivalent of a new-style complex vector v: newvec.
if v[imag] == 0
oldv = v[real]
else
oldv = cswitch(v, 2)
endif
polroots: This function now returns a new-style complex vector. As with eigengen, you can use
cswitch to convert the vector if necessary.
Chapter 19
Calendar dates
19.1 Introduction
Any software that aims to handle time-series data must have a good built-in calendar. This is fairly
straightforward in the current era, with the Gregorian calendar now used universally for the dating
of socioeconomic observations. It is not so straightforward, however, when dealing with historical
data recorded prior to the adoption of the Gregorian calendar in place of the Julian, an event which
first occurred in the principal Catholic countries in 1582 but which took place at different dates in
different countries over a span of several centuries.
Gretl, like most data-oriented software, uses the Gregorian calendar by default for all dates, thereby
ensuring that dates are all consecutive (the latter being a requirement of the ISO 8601 standard for
dates and times).1
As readers probably know, the Julian calendar adds a leap day (February 29) on each year that is
divisible by 4 with no remainder. But this over-compensates for the fact that a 365-day year is too
short to keep the calendar synchronized with the seasons. The Gregorian calendar introduced a
more complex rule which maintains better synchronization, namely, each year divisible by 4 with
no remainder is a leap year unless it’s a centurial year (e.g. 1900) in which case it’s a leap year only
if it is divisible by 400 with no remainder. So the years 1600 and 2000 were leap years on both
calendars, but 1700, 1800, and 1900 were leap years only on the Julian calendar. While the average
length of a Julian year is 365.25 days, the Gregorian average is 365.2425 days.
The fact that the Julian calendar inserts leap days more frequently means that the Julian date
progressively (although very slowly) falls behind the Gregorian date. For example, February 18
2017 (Gregorian) is February 5 2017 on the Julian calendar. On adoption of the Gregorian calendar
it was therefore necessary to skip several days. In England, where the transition occurred in 1752,
Wednesday September 2 was directly followed by Thursday September 14.
In comparing calendars one wants to refer to a given day in terms that are not specific to either
calendar—but how to define a “given day”? This is accomplished by a count of days following some
definite event. Astronomers use the “Julian Day,” whose count starts with a particular coincidence
of astronomical cycles in the year known to the Gregorian calendar (if one extrapolates it backwards
in time) as 4714 BC. Gretl uses a similar construction as a fulcrum, but the count of what we call the
“epoch day” starts at 1 on January 1, AD 1 (that is, the first day of the Common Era), on the proleptic
Gregorian calendar.2 This is also the convention used by the GLib library, on which gretl depends
for most of its calendrical calculation. Since GLib represents epoch days as unsigned integers, this
means that gretl does not support dates prior to the Common — or, if you prefer, Christian — Era.
19.2 Calendrical functions

Gretl’s calendrical functions are documented in the Gretl Command Reference. In this section we
say a bit more about how these functions relate to each other, and how they may be used to carry
out some specific tasks.
1 Gretl was not consistent in this regard prior to version 2017a: leap years were taken to be as defined by the Julian
calendar prior to the adoption of the Gregorian calendar by Britain and its colonies in 1752.
2 The term “proleptic,” as applied to a calendar, indicates that it is extrapolated backwards or forwards relative to its
period of actual historical use.
162
Chapter 19. Calendar dates 163
A first point to note is that a daily date has three possible representations within gretl. Two
are associated with the ISO 8601 standard, namely the “extended” representation, YYYY-MM-DD,
as for example 2017-02-19, and the “basic” representation, YYYYMMDD (for example 20170219). As
mentioned above, such dates are by default taken to be relative to the (possibly proleptic) Gregorian
calendar. The third representation is as an “epoch day” (see above), for example 736379, which is
calendar-independent and can therefore be used in converting from one calendar to another.
Decomposing a series of “basic” dates

To generate from a series of dates in ISO 8601 basic format distinct series holding year, month and
day, the function isoconv can be used. This function should be passed the original series followed
by “pointers to” the series to be filled out. For example, if we have a series named dates in the
prescribed format we might do
series y, m, d
isoconv(dates, &y, &m, &d)
This is mostly just a convenience function: provided the dates input is valid on the (possibly
proleptic) Gregorian calendar it is equivalent to:
series y = floor(dates/10000)
series m = floor((dates-10000*y)/100)
series d = dates - 10000*y - 100*m
However, there is some “value added”: isoconv checks the validity of the dates input. If the
implied year, month and day for any dates observation do not correspond to a valid Gregorian
date in the Common Era,3 then all the derived series will have value NA at that observation.
The isoconv function can also handle Julian dates, should anyone have need for that facility. The
convention is that if the negative of an ISO 8601 basic date is given as an argument, the date is
taken to be on the (possibly proleptic) Julian calendar. Since dates BCE are not supported by gretl,
hopefully this should not give rise to ambiguity. The only difference from the standard usage of
isoconv is that Julian-only dates, such as 17000229, are recognized as valid. So, for example,
series y, m, d
isoconv(-dates, &y, &m, &d)
will accept a dates value of 17000229, giving (y = 1700, m = 2, d = 29), while this would give NA
values for year, month and day on the default Gregorian calendar.
Obtaining and using epoch days

To convert from a Gregorian or Julian date to the corresponding epoch day, you can use the
epochday function, which takes as arguments year, month and day on the given calendar. Sim-
ilarly to isoconv, the convention is that Gregorian dates are assumed unless the year is given in
the negative to flag a Julian date. The following code fragment,
edg = epochday(1700,1,1)
edj = epochday(-1700,1,1)
produces edg = 620548 and edj = 620558, indicating that the two calendars differed by 10 days at
the point in time known as January 1, 1700, on the proleptic Gregorian calendar.
Taken together with the isodate and juldate functions (which each take an epoch day argument
and return an ISO 8601 basic date on, respectively, the Gregorian and Julian calendars), epochday
3 For example, the implied month is not in the range 1–12, or the implied day is not in the range of 1 to the number
of days in the month, taking account of Gregorian leap years.

can be used to convert between the two calendars. For example, what was the date in England (still
on the Julian calendar) on the day known to Italians as June 26, 1740 (Italy having been on the
Gregorian calendar since October 1582)?
ed = epochday(1740,6,26)
english_date = juldate(ed)
printf "%.0f\n", english_date
We find that the English date was 17400615, the 15th of June. Working in the other direction, what
Italian date corresponded to the 5th of November, 1740, in England?
ed = epochday(-1740,11,5)
italian_date = isodate(ed)
printf "%.0f\n", italian_date
Answer: 17401116; Guy Fawkes night in 1740 occurred on November 16 from the Italian point of
view.
A further—and perhaps more practical — use of epoch days is checking whether daily data are
complete. Suppose we have what purport to be 7-day daily data on the Gregorian calendar with
a starting date of 2015-01-01 and an ending date of 2016-12-31. How many observations should
there be?
ed1 = epochday(2015,1,1)
ed2 = epochday(2016,12,31)
n = ed2 - ed1 + 1
We find that there should be n = 731 observations; if there are fewer, there’s something missing.
If the data are supposed to be on a 5-day week (skipping Saturday and Sunday) or 6-day week
(skipping Sunday alone) the calculation is more complicated; in this case we can use the dayspan
function, providing as arguments the epoch-day values for the first and last dates and the number
of days per week:
ed1 = epochday(2015,1,1)
ed2 = epochday(2016,12,30)
n = dayspan(ed1, ed2, 5)
We discover that there were n = 522 weekdays in this period.

Note that while ISO 8601 basic dates can be used for easy comparison (which of two dates, on a
given calendar, refers to a later day?), one needs epoch days to carry out fully fledged “dates arith-
metic.” Epoch days are always consecutive by construction, but 8-digit basic dates are consecutive
only within a given month; they advance by 101 minus (days in previous month) at the start of each
month other than January and by 8870 at the start of each year.
Miscellaneous functions
Two additional functions that by default operate on the Gregorian calendar can be induced to
work on the Julian by the trick mentioned above, namely giving the negative of the year. These
are weekday (which takes arguments year, month and day) and monthlen (which takes arguments
month, year and days per week). Thus for example
eval weekday(-1700,2,29)
gives 4, indicating that Julian February 29, 1700 was a Thursday. And
eval monthlen(2,-1900,5)
gives 21, indicating that there were 21 weekdays in Julian February 1900.
19.3 Working with pre-Gregorian dates

In this section we address the problem of constructing within gretl a calendar which agrees with
the actual historical calendar prior to the switch to Gregorian dating. Most people will have no
use for this, but researchers working with archival data may find it helpful: it would be tricky and
error-prone to enter on the Gregorian calendar data whose dates are given on the Julian at source.
We’ll consider the trickiest case, namely a calendar which includes the day on which the Julian to
Gregorian switch occurred. If we can handle this, it should be relatively simple to handle a purely
Julian calendar. Our illustration will be England in 1752 (a similar analysis could be done for Spain
in 1582 or Greece in 1923). A solution is presented in Listing 19.1.
The first step is to find the epoch day corresponding to the Julian date 1752-01-01 (which turns
out to be 639551). Then we can create a series of epoch days, from which we get both Julian and
Gregorian dates for 355 days starting on epoch day 639551. Note, 355 days because this was a
short year: it was a leap year, but 11 days were skipped in September in making the transition to
the Gregorian calendar. We can then construct a series, hcal, which switches calendar at the right
historical point.
Listing 19.1: Historical calendar for Britain in 1752 [Download ▼]
# 1752 was a short year on the British calendar!

nulldata 355
# give a negative year to indicate Julian date
ed0 = epochday(-1752,1,1)
# consistent series of epoch day values
series ed = ed0 + index - 1
# Julian dates as YYYYMMDD
series jdate = juldate(ed)
# Gregorian dates as YYYYMMDD
series gdate = isodate(ed)
# Historical: cut-over in September
series hcal = ed > epochday(-1752,9,2) ? gdate : jdate
# And let’s take a look
print ed jdate gdate hcal -o
Partial output:
ed jdate gdate hcal
1 639551 17520101 17520112 17520101

2 639552 17520102 17520113 17520102
...
245 639795 17520901 17520912 17520901
246 639796 17520902 17520913 17520902
247 639797 17520903 17520914 17520914
248 639798 17520904 17520915 17520915
...
355 639905 17521220 17521231 17521231
Notice that although the series hcal contains the correct historical calendar (in “basic” form), the
observation labels (in the first column of the output) are still just index numbers. It may be prefer-
able to have historical dates in that role. To achieve this we can decompose the hcal series into
year, month and day, then use the special genr markers apparatus (see chapter 4). Suitable code
along with partial output is shown in Listing 19.2.
Listing 19.2: Continuation of Britain 1752 example [Download ▼]

Additional input:
series y, m, d
isoconv(hcal, &y, &m, &d)
genr markers = "%04d-%02d-%02d", y, m, d
print ed jdate gdate hcal -o
Partial output:
ed jdate gdate hcal
1752-01-01 639551 17520101 17520112 17520101

1752-01-02 639552 17520102 17520113 17520102
...
1752-09-01 639795 17520901 17520912 17520901
1752-09-02 639796 17520902 17520913 17520902
1752-09-14 639797 17520903 17520914 17520914
1752-09-15 639798 17520904 17520915 17520915
...
1752-12-31 639905 17521220 17521231 17521231
19.4 Year numbering

A further complication in dealing with archival data is that the year number has not always been
advanced on January 1; for example in Britain prior to 1752, March 25 was taken as the start of
the new year. On gretl’s calendar (whether Julian or Gregorian) the year number always advances
on January 1, but it’s possible to construct observation markers following the old scheme. This is
illustrated for the year 1751 (as we would now call it) in Listing 19.3.
Listing 19.3: Historical calendar for England in 1751 [Download ▼]

Input:
nulldata 365 # a common year
ed0 = epochday(-1751,1,1)
ed1 = epochday(-1751,3,25)
series ed = ed0 + index - 1
series jdate = juldate(ed)
series y, m, d
isoconv(jdate, &y, &m, &d)
y = ed < ed1 ? y-1 : y
genr markers = "%04d-%02d-%02d", y, m, d
print index -o
Partial output:
1750-01-01 1
1750-01-02 2
1750-01-03 3
...
1750-03-23 82
1750-03-24 83
1751-03-25 84
1751-03-26 85
...
1751-12-31 365
Chapter 20
Handling mixed-frequency data
20.1 Basics
In some cases one may want to handle data that are observed at different frequencies, a facility
known as “MIDAS” (Mixed Data Sampling). A common pairing includes GDP, usually available quar-
terly, and industrial production, often available monthly. The most common context when this
feature is required is specification and estimation of MIDAS models (see Chapter 41), but other
cases are possible.
A gretl dataset formally handles only a single data frequency, but we have adopted a straightfor-
ward means of representing nested frequencies: a higher frequency series xH is represented by a
set of m series, each holding the value of xH in a sub-period of the “base” (lower-frequency) period
(where m is the ratio of the higher frequency to the lower).
This is most easily understood by means of an example. Suppose our base frequency is quarterly
and we wish to include a monthly series in the analysis. Then a relevant fragment of the gretl
dataset might look as shown in Table 20.1. Here, gdpc96 is a quarterly series while indpro is
monthly, so m = 12/4 = 3 and the per-month values of indpro are identified by the suffix _mn,
n = 3, 2, 1.
gdpc96 indpro_m3 indpro_m2 indpro_m1
1947:1 1934.47 14.3650 14.2811 14.1973

1947:2 1932.28 14.3091 14.3091 14.2532
1947:3 1930.31 14.4209 14.3091 14.2253
1947:4 1960.70 14.8121 14.7562 14.5606
1948:1 1989.54 14.7563 14.9240 14.8960
1948:2 2021.85 15.2313 15.0357 14.7842
Table 20.1: A slice of MIDAS data
To recover the actual monthly time series for indpro one must read the three relevant series right-
to-left by row. At first glance this may seem perverse, but in fact it is the most convenient setup
for MIDAS analysis. In such models, the high-frequency variables are represented by lists of lags,
and of course in econometrics it is standard to give the most recent lag first (xt−1 , xt−2 , . . .).
One can construct such a dataset manually from “raw” sources using hansl’s matrix-handling meth-
ods or the join command (see Section 20.6 for illustrations), but we have added native support for
the common cases shown below.
base frequency higher frequency

annual quarterly or monthly
quarterly monthly or daily
monthly daily
The examples below mostly pertain to the case of quarterly plus monthly data. Section 20.6 has
details on handling of daily data.
167
Chapter 20. Handling mixed-frequency data 168
A mixed-frequency dataset can be created in either of two ways: by selective importation of series
from a database, or by creating two datasets of different frequencies then merging them.
Importation from a database

Here’s a simple example, in which we draw from the fedstl (St Louis Fed) database which is
supplied in the gretl distribution:
clear
open fedstl.bin
data gdpc96
data indpro --compact=spread
store gdp_indpro.gdt
Since gdpc96 is a quarterly series, its importation via the data command establishes a quarterly
dataset. Then the MIDAS work is done by the option --compact=spread for the second invocation
of data. This “spreads” the series indpro— which is monthly at source — into three quarterly
series, exactly as shown in Table 20.1.
Merging two datasets

In this case we consider an Excel file provided by Eric Ghysels in his MIDAS Matlab Toolbox,1
namely mydata.xlsx. This contains quarterly real GDP in Sheet1 and monthly non-farm payroll
employment in Sheet2. A hansl script to build a MIDAS-style file named gdp_payroll_midas.gdt
is shown in Listing 20.1.
Listing 20.1: Building a gretl MIDAS dataset via merger
# sheet 2 contains monthly employment data

open MIDASv2.2/mydata.xlsx --sheet=2
rename VALUE payems
dataset compact 4 spread
# limit to the sample range of the GDP data
smpl 1947:1 2011:2
setinfo payems_m3 --description="Non-farm payroll employment, month 3 of quarter"
store payroll_midas.gdt
# sheet 1 contains quarterly GDP data

open MIDASv2.2/mydata.xlsx --sheet=1
rename VALUE qgdp
setinfo qgdp --description="Real quarterly US GDP"
append payroll_midas.gdt
store gdp_payroll_midas.gdt
Note that both series are simply named VALUE in the source file, so we use gretl’s rename command
to set distinct and meaningful names. The heavy lifting is done here by the line
1 See http://eghysels.web.unc.edu/ for links.

which tells gretl to compact an entire dataset (in this case, as it happens, just containing one
series) to quarterly frequency using the “spread” method. Once this is done, it is straightforward
to append the compacted data to the quarterly GDP dataset.
We will put an extended version of this dataset (supplied with gretl, and named gdp_midas.gdt)
to use in subsequent sections.
20.2 The notion of a “MIDAS list”

In the following two sections we’ll describe functions that (rather easily) do the right thing if you
wish to create lists of lags or first differences of high-frequency series. However, we should first
be clear about the correct domain for such functions, since they could produce the most diabolical
mash-up of your data if applied to the wrong sort of list argument — for instance, a regular list
containing distinct series, all observed at the “base frequency” of the dataset.
So let us define a MIDAS list: this is a list of m series holding per-period values of a single high-
frequency series, arranged in the order of most recent first, as illustrated above. Given the dataset
shown in Table 20.1, an example of a correctly formulated MIDAS list would be
list INDPRO = indpro_m3 indpro_m2 indpro_m1
Or, since the monthly observations are already in the required order, we could define the list by
means of a “wildcard”:
list INDPRO = indpro_m*
Having created such a list, one can use the setinfo command to tell gretl that it’s a bona fide
MIDAS list:
setinfo INDPRO --midas
This will spare you some warnings that gretl would otherwise emit when you call some of the
functions described below. This step should not be necessary, however, if the series in question
are the product of a compact operation with the spread parameter.
Inspecting high-frequency data

The layout of high-frequency data shown in Table 20.1 is convenient for running regressions, but
not very convenient for inspecting and checking such data. We therefore provide some methods
for displaying MIDAS data at their “natural” frequency. Figure 20.1 shows the gretl main window
with the gdp_midas dataset loaded, along with the menu that pops up if you right-click with the
payems series highlighted. The items “Display values” and “Time series plot” show the data on
their original monthly calendar, while the “Display components” item shows the three component
series on a quarterly calendar, as in Table 20.1.
These methods are also available via the command line. For example, the commands
list PAYEMS = payems_*

print PAYEMS --byobs --midas
hfplot PAYEMS --with-lines --output=display
produce a monthly printout of the payroll employment data, followed by a monthly time-series
plot. (See section 20.5 for more on hfplot.)
Figure 20.1: MIDAS data menu
20.3 High-frequency lag lists

A basic requirement of MIDAS is the creation of lists of high-frequency lags for use on the right-
hand side of a regression specification. This is possible, but not very convenient, using the long-
standing behavior of gretl’s lags function; it is made easier by a dedicated variant of that function
described below.
For illustration we’ll consider an example presented in Ghysels’ Matlab implementation of MIDAS:
this uses 9 monthly lags of payroll employment, starting at lag 3, in a model for quarterly GDP.
The estimation period for this model starts in 1985Q1. At this observation, the stipulation that we
start at lag 3 means that the first (most recent) lag is employment for October 1984,2 and the 9-lag
window means that we need to include monthly lags back to February 1984. Let the per-month
employment series be called x_m3, x_m2 and x_m1, and let (quarterly) lags be represented by (-1),
(-2) and so on. Then the terms we want are (reading left-to-right by row):
. . x_m1(-1)
x_m3(-2) x_m2(-2) x_m1(-2)
x_m3(-3) x_m2(-3) x_m1(-3)
x_m3(-4) x_m2(-4) .
We could construct such a list in gretl using the following standard syntax. (Note that the third
argument of 1 to lags below tells gretl that we want the terms ordered “by lag” rather than “by
variable”; this is required to respect the order of the terms shown above.)
list X = x_m*
# create lags for 4 quarters, "by lag"
list XL = lags(4,X,1)
# convert the list to a matrix
matrix tmp = XL
# trim off the first two elements, and the last
tmp = tmp[3:11]
2 That is what Ghysels means, but see the sub-section on “Leads and nowcasting” below for a possible ambiguity in
this regard.
# and convert back to a list

XL = tmp
However, the following specialized syntax is more convenient:
list X = x_m*
setinfo X --midas
# create high-frequency lags 3 to 11
list XL = hflags(3, 11, X)
In the case of hflags the length of the list given as the third argument defines the “compaction
ratio” (m = 3 in this example); we can (in fact, must) specify the lags we want in high-frequency
terms; and ordering of the generated series by lag is automatic.
Word to the wise: do not use hflags on anything other than a MIDAS list as defined in section 20.2,
unless perhaps you have some special project in mind and really know what you are doing.
Leads and nowcasting

Before leaving the topic of lags, it is worth commenting on the question of leads and so-called
“nowcasting”—that is, prediction of the current value of a lower-frequency variable before its mea-
surement becomes available.
In a regular dataset where all series are of the same frequency, lag 1 means the observation from
the previous period, lag 0 is equivalent to the current observation, and lag −1 (or lead 1) is the
observation for the next period into the relative future.
When considering high-frequency lags in the MIDAS context, however, there is no uniquely deter-
mined high-frequency sub-period which is temporally coincident with a given low-frequency period.
The placement of high-frequency lag 0 therefore has to be a matter of convention. Unfortunately,
there are two incompatible conventions in currently available MIDAS software, as follows.
• High-frequency lag 0 corresponds to the first sub-period within the current low-frequency
period. This is what we find in Eric Ghysels’ MIDAS Matlab Toolbox; it’s also clearly stated and
explained in Armesto et al. (2010).
• High-frequency lag 0 corresponds to the last sub-period in the current low-frequency period.
This convention is employed in the midasr package for R.3
Consider, for example, the quarterly/monthly case. In Matlab, high-frequency (HF) lag 0 is the first
month of the current quarter, HF lag 1 is the last month of the prior quarter, and so on. In midasr,
however, HF lag 0 is the last month of the current quarter, HF lag 1 the middle month of the quarter,
and HF lag 3 is the first one to take you “back in time” relative to the start of the current quarter,
namely to the last month of the prior quarter.
In gretl we have chosen to employ the first of these conventions. So lag 1 points to the most
recent sub-period in the previous base-frequency period, lag 0 points to the first sub-period in the
current period, and lag −1 to the second sub-period within the current period. Continuing with
the quarterly/monthly case, monthly observations for lags 0 and −1 are likely to become available
before a measurement for the quarterly variable is published (possibly also a monthly value for lag
−2). The first “truly future” lead does not occur until lag −3.
The hflags function supports negative lags. Suppose one wanted to use 9 lags of a high-frequency
variable, −1, 0, 1, . . . , 7, for nowcasting. Given a suitable MIDAS list, X, the following would do the
job:
list XLnow = hflags(-1, 7, X)

3 See http://cran.r-project.org/web/packages/midasr/, and for documentation https://github.com/
mpiktas/midasr-user-guide/raw/master/midasr-user-guide.pdf.
This means that one could generate a forecast for the current low-frequency period (which is not
yet completed and for which no observation is available) using data from two sub-periods into the
low-frequency period (e.g. the first two months of the quarter).
20.4 High-frequency first differences

When working with non-stationary data one may wish to take first differences, and in the MIDAS
context that probably means high-frequency differences of the high-frequency data. Note that the
ordinary gretl functions diff and ldiff will not do what is wanted for series such as indpro, as
shown in Table 20.1: these functions will give per-month quarterly differences of the data (month
3 of the current quarter minus month 3 of the previous quarter, and so on).
To get the desired result one could create the differences before compacting the high-frequency
data but this may not be convenient, and it’s not compatible with the method of constructing a
MIDAS dataset shown in section 20.1. The alternative is to employ the specialized differencing
function hfdiff. This takes one required argument, a MIDAS list as defined in section 20.2. A
second, optional argument is a scalar multiplier (with default value 1.0); this permits scaling the
output series by a constant. There’s also an hfldiff function for creating high-frequency log
differences; this has the same syntax as hfdiff.
So for example, the following creates a list of high-frequency percentage changes (100 times log-
difference) then a list of high-frequency lags of the changes.
list X = indpro_*
setinfo X --midas
list dX = hfldiff(X, 100)
list dXL = hflags(3, 11, dX)
If you only need the series in the list dXL, however, you can nest these two function calls:
list dXL = hflags(3, 11, hfldiff(X, 100))
20.5 MIDAS-related plots

In the context of MIDAS analysis one may wish to produce time-series plots which show high- and
low-frequency data in correct registration (as in Figures 1 and 2 in Armesto et al., 2010). This can
be done using the hfplot command, which has the following syntax:
hfplot midas-list [; lflist ] options
The required argument is a MIDAS list, as defined above. Optionally, one or more lower-frequency
series (lflist) can be added to the plot following a semicolon. Supported options are --with-lines,
--time-series and --output. These have the same effects as with the gretl’s gnuplot command.
An example based on Figure 1 in Armesto et al. (2010) is shown in Listing 20.2 and Figure 20.2.
20.6 Alternative MIDAS data methods

Importation via a column vector
Listing 20.3 illustrates how one can construct via hansl a MIDAS list from a matrix (column vector)
holding data of a higher frequency than the given dataset. In practice one would probably read
high frequency data from file using the mread function, but here we just construct an artificial
sequential vector.
Note the check in the high_freq_list function: we determine the current sample size, T, and
insist that the input matrix is suitably dimensioned, with a single column of length equal to T times
the compaction factor (here 3, for monthly to quarterly).
Listing 20.2: Replication of a plot from Armesto et al [Download ▼]
open gdp_midas.gdt
# form and label the dependent variable

series dy = log(qgdp/qgdp(-1))*400
setinfo dy --graph-name="GDP"
# form list of annualized HF differences

list X = payems*
list dX = hfldiff(X, 1200)
setinfo dX --graph-name="Payroll Employment"
smpl 1980:1 2009:1

hfplot dX ; dy --with-lines --time-series --output=display
20
Payroll Employment
GDP
15
10
-5
-10
1980 1985 1990 1995 2000 2005
Figure 20.2: Quarterly GDP and monthly Payroll Employment, annualized percentage changes
Listing 20.3: Create a midas list from a matrix [Download ▼]
function list high_freq_list (const matrix x, int compfac, string vname)

list ret = null
scalar T = $nobs
if rows(x) != compfac*T || cols(x) != 1
funcerr "Invalid x matrix"
endif
matrix m = mreverse(mshape(x, compfac, T))’
loop i=1..compfac
scalar k = compfac + 1 - i
ret += genseries(sprintf("%s%d", vname, k), m[,i])
endloop
setinfo ret --midas
return ret
end function
# construct a little "quarterly" dataset

nulldata 12
setobs 4 1980:1
# generate "monthly" data, 1,2,...,36

matrix x = seq(1,3*$nobs)’
print x
# turn into midas list
list H = high_freq_list(x, 3, "test_m")
print H --byobs
The final command in the script should produce
test_m3 test_m2 test_m1
1980:1 3 2 1
1980:2 6 5 4
1980:3 9 8 7
...
This functionality is available in the built-in function hflist, which has the same signature as the
hansl prototype above.
Importation via join

The join command provides a general and flexible framework for importing data from external
files (see chapter 7).
In order to handle multiple-frequency data, it supports the “spreading” of high-frequency series to
a MIDAS list in a single operation. This requires use of the --aggr option with parameter spread.
There are two acceptable forms of usage, illustrated below. Note that AWM is a quarterly dataset
while hamilton is monthly. First case:
open AWM.gdt
join hamilton.gdt PC6IT --aggr=spread
and second case:
open AWM.gdt
join hamilton.gdt PCI --data=PC6IT --aggr=spread
In the first case MIDAS series PC6IT_m3, PC6IT_m2 and PC6IT_m1 are added to the working dataset.
In the second case “PCI” is used as the base name for the imports, giving PCI_m3, PCI_m2 and
PCI_m1 as the names of the per-month series.
Note that only one high-frequency series can be imported in a given join invocation with the
option --aggr=spread, which already implies the writing of multiple series in the lower frequency
dataset.
An important point to note is that the --aggr=spread mechanism (where we map from one higher-
frequency series to a set of lower-frequency ones) relies on finding a known, reliable time-series
structure in the “outer” data file. Native gretl time-series data files will have such a structure, and
also well-formed gretl-friendly CSV files, but not arbitrary comma-separated files. So if you have
difficulty importing data MIDAS-style from a given CSV file using --aggr=spread you might want
to drop back to a more agnostic, piece-wise approach (agnostic in the sense of assuming less about
gretl’s ability to detect any time-series structure that might be present). Here’s an example:
open hamilton.gdt
# create month-of-quarter series for filtering
series mofq = ($obsminor - 1) % 3 + 1
# write example CSV file: the first column holds, e.g. "1973M01"
store test.csv PC6IT mofq
open AWM.gdt -q
# import monthly components one at a time, using a filter
join test.csv PCI_m3 --data=PC6IT --tkey=",%YM%m" --filter="mofq==3"
list PCI = PCI_*
setinfo PCI --midas
print PCI_m* --byobs
The example is artificial in that a time-series CSV file of suitable frequency written by gretl itself
should work without special treatment. But you may have to add “helper” columns (such as the
mofq series above) to a third-party CSV file to enable a piece-wise MIDAS join via filtering.
Daily data
Daily data (commonly financial-market data) are often used in practical applications of the MIDAS
methodology. It’s therefore important that gretl support use of such data, but there are special
issues arising from the fact that the number of days in a month, quarter or year is not a constant.
It seems to us that it’s necessary to stipulate a fixed, conventional number of days per lower-
frequency period (that is, in practice, per month or quarter, since for the moment we’re ignoring
the week as a basic temporal unit and we’re not yet attempting to support the combination of
annual and daily data). But matters are further complicated by the fact that daily data come in (at
least) three sorts: 5 days per week (as in financial-market data), 6-day (some commercial data which
skip Sunday) and 7-day.
That said, we currently support—via compact=spread, as described in section 20.1 — the following
conversions:
• Daily to monthly: If the daily data are 5-days per week, we impose 22 days per month. This is
the median, and also the mode, of weekdays per month, although some months have as few
as 20 weekdays and some have 23. If the daily data are 6-day we impose 26 days per month,
and in the 7-day case, 30 days per month.
• Daily to quarterly: In this case the stipulated days per quarter are simply 3 times the days-
per-month values specified above.
So, given a daily dataset, you can say
to convert MIDAS-wise to monthly (or substitute 4 for 12 for a quarterly target). And this is sup-
posed to work whether the number of days per week is 5, 6 or 7.
That leaves the question of how we handle cases where the actual number of days in the calendar
month or quarter falls short of, or exceeds, the stipulated number. We’ll talk this through with
reference to the conversion of 5-day daily data to monthly; all other cases are essentially the same,
mutatis mutandis.4
We start at “day 1,” namely the first relevant daily date within the calendar period (so the first
weekday, with 5-day data). From that point on we fill up to 22 slots with relevant daily observations
(including, not skipping, NAs due to holidays or whatever). If at the end we have daily observations
left over, we ignore them. If we’re short we fill the empty slots with the arithmetic mean of the
valid, used observations;5 and we fill in any missing values in the same way.
This means that lags 1 to 22 of 5-day daily data in a monthly dataset are always observations from
days within the prior month (or in some cases “padding” that substitutes for such observations);
lag 23 takes you back to the most recent day in the month before that.
Clearly, we could get a good deal fancier in our handling of daily data: for example, letting the
user determine the number of days per month or quarter, and/or offering more elaborate means
of filling in missing and non-existent daily values. It’s not clear that this would be worthwhile, but
it’s open to discussion.
A little daily-to-monthly example is shown in Listing 20.4 and Figure 20.3. The example exercises
the hfplot command (see section 20.5).
4 Or should be! We’re not ready to guarantee that just yet.
5 This is the procedure followed in some example programs in the MIDAS Matlab Toolbox.
Listing 20.4: Monthly plus daily data [Download ▼]
# open a daily dataset

open djclose.gdt
# spread the data to monthly

list DJ = djc*
# import an actual monthly series

open fedstl.bin
data indpro
# high-frequency plot (set --output=daily.pdf for PDF)

hfplot DJ ; indpro --with-lines --output=display \
{set key top left;}
3000 66
djclose (left)
indpro (right) 64
2500
62
60
2000
58
56
1500
54
52
1000
50
500 48
1980 1982 1984 1986 1988 1990
Figure 20.3: Monthly industrial production and daily Dow Jones close
Chapter 21
Cheat sheet
This chapter explains how to perform some common — and some not so common — tasks in gretl’s
scripting language, hansl. Some but not all of the techniques listed here are also available through
the graphical interface. Although the graphical interface may be more intuitive and less intimidat-
ing at first, we encourage users to take advantage of the power of gretl’s scripting language as soon
as they feel comfortable with the program.
21.1 Dataset handling

“Weird” periodicities
Problem: You have data sampled each 3 minutes from 9am onwards; you’ll probably want to specify
the hour as 20 periods.
Solution:
setobs 20 9:1 --special
Comment: Now functions like sdiff() (“seasonal” difference) or estimation methods like seasonal
ARIMA will work as expected.
Generating a panel dataset of given dimensions

Problem: You want to generate via nulldata a panel dataset and specify in advance the number of
units and the time length of your series via two scalar variables.
Solution:
scalar n_units = 100

scalar T = 12
scalar NT = T * n_units
nulldata NT --preserve
setobs T 1:1 --stacked-time-series
Comment: The essential ingredient that we use here is the --preserve option: it protects existing
scalars (and matrices, for that matter) from being trashed by nulldata, thus making it possible to
use the scalar T in the setobs command.
Help, my data are backwards!

Problem: Gretl expects time series data to be in chronological order (most recent observation last),
but you have imported third-party data that are in reverse order (most recent first).
Solution:
setobs 1 1 --cross-section
series sortkey = -obs
dataset sortby sortkey
setobs 1 1950 --time-series
178
Chapter 21. Cheat sheet 179
Comment: The first line is required only if the data currently have a time series interpretation: it
removes that interpretation, because (for fairly obvious reasons) the dataset sortby operation is
not allowed for time series data. The following two lines reverse the data, using the negative of the
built-in index variable obs. The last line is just illustrative: it establishes the data as annual time
series, starting in 1950.
If you have a dataset that is mostly the right way round, but a particular variable is wrong, you can
reverse that variable as follows:
x = sortby(-obs, x)
Dropping missing observations selectively

Problem: You have a dataset with many variables and want to restrict the sample to those observa-
tions for which there are no missing observations for the variables x1, x2 and x3.
Solution:
list X = x1 x2 x3
smpl --no-missing X
Comment: You can save the file via a store command to preserve a subsampled version of the
dataset. Alternative solutions based on the ok function, such as
list X = x1 x2 x3
series sel = ok(X)
smpl sel --restrict
are perhaps less obvious, but more flexible. Pick your poison.
“By” operations
Problem: You have a discrete variable d and you want to run some commands (for example, estimate
a model) by splitting the sample according to the values of d.
Solution:
matrix vd = values(d)
m = rows(vd)
loop i=1..m
scalar sel = vd[i]
smpl d==sel --restrict --replace
ols y const x
endloop
smpl --full
Comment: The main ingredient here is a loop. You can have gretl perform as many instructions as
you want for each value of d, as long as they are allowed inside a loop. Note, however, that if all
you want is descriptive statistics, the summary command does have a --by option.
Adding a time series to a panel

Problem: You have a panel dataset (comprising observations of n indidivuals in each of T periods)
and you want to add a variable which is available in straight time-series form. For example, you
want to add annual CPI data to a panel in order to deflate nominal income figures.
In gretl a panel is represented in stacked time-series format, so in effect the task is to create a new
variable which holds n stacked copies of the original time series. Let’s say the panel comprises 500
individuals observed in the years 1990, 1995 and 2000 (n = 500, T = 3), and we have these CPI
data in the ASCII file cpi.txt:
date cpi
1990 130.658
1995 152.383
2000 172.192
What we need is for the CPI variable in the panel to repeat these three values 500 times.
Solution: Simple! With the panel dataset open in gretl,
append cpi.txt
Comment: If the length of the time series is the same as the length of the time dimension in the
panel (3 in this example), gretl will perform the stacking automatically. Rather than using the
append command you could use the “Append data” item under the File menu in the GUI program.
If the length of your time series does not exactly match the T dimension of your panel dataset,
append will not work but you can use the join command, which is able to pick just the observations
with matching time periods. On selecting “Append data” in the GUI you are given a choice between
plain “append” and “join” modes, and if you choose the latter you get a dialog window allowing you
to specify the key(s) for the join operation. For native gretl data files you can use built-in series that
identify the time periods, such as $obsmajor, for your outer key to match the dates. In the example
above, if the CPI data were in gretl format $obsmajor would give you the year of the observations.
Time averaging of panel datasets

Problem: You have a panel dataset (comprising observations of n indidivuals in each of T periods)
and you want to lower the time frequency by averaging. This is commonly done in empirical growth
economics, where annual data are turned into 3- or 4- or 5-year averages (see for example Islam,
1995).
Solution: In a panel dataset, gretl functions that deal with time are aware of the panel structure,
so they will automatically “do the right thing”. Therefore, all you have to do is use the movavg()
function for computing moving averages and then just drop the years you don’t need. An example
with artificial data follows:
nulldata 36
set seed 61218
setobs 12 1:1 --stacked-time-series
###
### generate simulated yearly data
###
series year = 2000 + time
series y = round(normal())
series x = round(3*uniform())
list X = y x
print year X -o
###
### now re-cast as 4-year averages
###
# a dummy for endpoints
series endpoint = (year % 4 == 0)
# id variable
series id = $unit
# compute averages
loop foreach i X
series $i = movavg($i, 4)
endloop
# drop extra observations

smpl endpoint --dummy --permanent
# restore panel structure

setobs id year --panel-vars
print id year X -o
Running the above script produces (among other output):
? print year X -o
year y x
1:01 2001 1 1
1:02 2002 -1 1
1:03 2003 -1 0
1:04 2004 0 1
1:05 2005 1 2
1:06 2006 1 2
1:07 2007 -1 0
1:08 2008 1 1
1:09 2009 0 3
1:10 2010 -1 1
1:11 2011 1 1
1:12 2012 0 1
...
3:09 2009 0 1
3:10 2010 1 1
3:11 2011 0 2
3:12 2012 1 2
? print id year X -o
id year y x
1:1 1 2004 -0.25 0.75

1:2 1 2008 0.50 1.25
1:3 1 2012 0.00 1.50
...
3:3 3 2012 0.50 1.50
Turning observation-marker strings into a series

Problem: Here’s one that might turn up in the context of the join command (see chapter 7).
The current dataset contains a string-valued series that you’d like to use as a key for matching
observations, perhaps the two-letter codes for the names of US states. The file from which you wish
to add data contains that same information, but not in the form of a string-valued series, rather it
exists in the form of “observation markers”. Such markers cannot be used as a key directly, but is
there a way to parlay them into a string-valued series? Why, of course there is!
Solution: We’ll illustrate with the Ramanathan data file data4-10.gdt, which contains private
school enrollment data and covariates for the 50 US states plus Washington, D.C. (n = 51).
open data4-10.gdt
markers --to-array="state_codes"
genr index
stringify(index, state_codes)
store joindata.gdt
Comment: The markers command saves the observation markers to an array of strings. The com-
mand genr index creates a series that goes 1, 2, 3, . . . , and we attach the state codes to this series
via stringify(). After saving the result we have a datafile that contains a series, index, that can
be matched with whatever series holds the state code strings in the target dataset.
Suppose the relevant string-valued key series in the target dataset is called state. We might prefer
to avoid the need to specify a distinct “outer” key (again see chapter 7). In that case, in place of
genr index
stringify(index, state_codes)
we could do
genr index
series state = index
stringify(state, state_codes)
and the two datafiles will contain a comparable string-valued state series.
21.2 Creating/modifying variables

Generating a dummy variable for a specific observation
Problem: Generate dt = 0 for all observation but one, for which dt = 1.
Solution:
series d = (t=="1984:2")
Comment: The internal variable t is used to refer to observations in string form, so if you have a
cross-section sample you may just use d = (t=="123"). If the dataset has observation labels you
can use the corresponding label. For example, if you open the dataset mrw.gdt, supplied with gretl
among the examples, a dummy variable for Italy could be generated via
series DIta = (t=="Italy")
Note that this method does not require scripting at all. In fact, you might as well use the GUI Menu
“Add/Define new variable” for the same purpose, with the same syntax.
Generating a discrete variable out of a set of dummies

Problem: The dummify function (also available as a command) generates a set of mutually exclusive
dummies from a discrete variable. The reverse functionality, however, seems to be absent.
Solution:
series x = lincomb(D, seq(1, nelem(D)))
Comment: Suppose you have a list D of mutually exclusive dummies, that is a full set of 0/1 vari-
ables coding for the value of some characteristic, such that the sum of the values of the elements
of D is 1 at each observation. This is, by the way, exactly what the dummify command produces.
The reverse job of dummify can be performed neatly by using the lincomb function.
The code above multiplies the first dummy variable in the list D by 1, the second one by 2, and so
on. Hence, the return value is a series whose value is i if and only if the i-th member of D has value
1.
If you want your coding to start from 0 instead of 1, you’ll have to modify the code snippet above
into
series x = lincomb(D, seq(0, nelem(D)-1))

Easter
Problem: I have a 7-day daily dataset. How do I create an “Easter” dummy?
Solution: We have the easterday() function, which returns month and day of Easter given the
year. The following is an example script which uses this function and a few string magic tricks:
series Easter = 0
loop y=2011..2016
a = easterday(y)
m = floor(a)
d = round(100*(a-m))
ed_str = sprintf("%04d-%02d-%02d", y, m, d)
Easter["@ed_str"] = 1
endloop
Comment: The round() function is necessary for the “day” component because otherwise floating-
point problems may ensue. Try the year 2015, for example.
Recoding a variable
Problem: You want to perform a 1-to-1 recode on a variable. For example, consider tennis points:
you may have a variable x holding values 1 to 3 and you want to recode it to 15, 30, 40.
Solution 1:
series x = replace(x, 1, 15)

Solution 2:
matrix tennis = {15, 30, 40}

series x = replace(x, seq(1,3), tennis)
Comment: There are many equivalent ways to achieve the same effect, but for simple cases such
as this, the replace function is simple and transparent. If you don’t mind using matrices, scripts
using replace can also be remarkably compact. Note that replace also performs n-to-1 (“surjec-
tive”) replacements, such as
series x = replace{z, {2, 3, 5, 11, 22, 33}, 1)
which would turn all entries equal to 2, 3, 5, 11, 22 or 33 to 1 and leave the other ones unchanged.
Generating a “subset of values” dummy

Problem: You have a dataset which contains a fine-grained coding for some qualitative variable
and you want to “collapse” this to a relatively small set of dummy variables. Examples: you have
place of work by US state and you want a small set of regional dummies; or you have detailed
occupational codes from a census dataset and you want a manageable number of occupational
category dummies.
Let’s call the source series src and one of the target dummies D1. And let’s say that the values
of src to be grouped under D1 are 2, 13, 14 and 25. We’ll consider three possible solutions:
“Longhand,” “Clever,” and “Proper.”
“Longhand” solution:
series D1 = src==2 || src==13 || src==14 || src==25

Comment: The above works fine if the number of distinct values in the source to be condensed into
each dummy variable is fairly small, but it becomes cumbersome if a single dummy must comprise
dozens of source values.
Clever solution:
matrix sel = {2,13,14,25}

series D1 = maxr({src} .= vec(sel)’) .> 0
Comment: The subset of values to be grouped together can be written out as a matrix relatively
compactly (first line). The magic that turns this into the desired series (second line) relies on the
versatility of the “dot” (element-wise) matrix operators. The expression “{src}” gets a column-
vector version of the input series—call this x — and “vec(sel)’” gets the input matrix as a row
vector, in case it’s a column vector or a matrix with both dimensions greater than 1 — call this s. If
x is n × 1 and s is 1 × m, the “.=” operator produces an n × m result, each element (i, j) of which
equals 1 if xi = sj , otherwise 0. The maxr() function along with the “.>” operator (see chapter 17
for both) then produces the result we want.
Of course, whichever procedure you use, you have to repeat for each of the dummy series you want
to create (but keep reading—the “proper” solution is probably what you want if you plan to create
several dummies).
Further comment: Note that the clever solution depends on converting what is “naturally” a vector
result into a series. This will fail if there are missing values in src, since (by default) missing values
will be skipped when converting src to x, and so the number of rows in the result will fall short
of the number of observations in the dataset. One fix is then to subsample the dataset to exclude
missing values before employing this method; another is to adjust the skip_missing setting via
the set command (see the Gretl Command Reference).
Proper solution:
The best solution, in terms of both computational efficiency and code clarity, would be using a
“conversion table” and the replace function, to produce a series on which the dummify command
can be used. For example, suppose we want to convert from a series called fips holding FIPS
codes1 for the 50 US states plus the District of Columbia to a series holding codes for the four
standard US regions. We could create a 2 × 51 matrix — call it srmap— with the 51 FIPS codes on
the first row and the corresponding region codes on the second, and then do
series region = replace(fips, srmap[1,], srmap[2,])
Generating an ARMA(1,1)
Problem: Generate yt = 0.9yt−1 + εt − 0.5εt−1 , with εt ∼ NIID(0, 1).
Recommended solution:
alpha = 0.9
theta = -0.5
series y = filter(normal(), {1, theta}, alpha)
“Bread and butter” solution:
alpha = 0.9
theta = -0.5
series e = normal()
series y = 0
series y = alpha * y(-1) + e + theta * e(-1)
1 FIPS is the Federal Information Processing Standard: it assigns numeric codes from 1 to 56 to the US states and
outlying areas.
Comment: The filter function is specifically designed for this purpose so in most cases you’ll
want to take advantage of its speed and flexibility. That said, in some cases you may want to
generate the series in a manner which is more transparent (maybe for teaching purposes).
In the second solution, the statement series y = 0 is necessary because the next statement eval-
uates y recursively, so y[1] must be set. Note that you must use the keyword series here instead
of writing genr y = 0 or simply y = 0, to ensure that y is a series and not a scalar.
Recoding a variable by classes

Problem: You want to recode a variable by classes. For example, you have the age of a sample of
individuals (xi ) and you need to compute age classes (yi ) as
yi = 1 for xi < 18
yi = 2 for 18 ≤ xi < 65
yi = 3 for xi ≥ 65
Solution:
series y = 1 + (x >= 18) + (x >= 65)
Comment: True and false expressions are evaluated as 1 and 0 respectively, so they can be ma-
nipulated algebraically as any other number. The same result could also be achieved by using the
conditional assignment operator (see below), but in most cases it would probably lead to more
convoluted constructs.
Conditional assignment
Problem: Generate yt via the following rule:
(
xt for dt > a
yt =
zt for dt ≤ a
Solution:
series y = (d > a) ? x : z
Comment: There are several alternatives to the one presented above. One is a brute force solution
using loops. Another one, more efficient but still suboptimal, would be
series y = (d>a)*x + (d<=a)*z
However, the ternary conditional assignment operator is not only the most efficient way to accom-
plish what we want, it is also remarkably transparent to read when one gets used to it. Some readers
may find it helpful to note that the conditional assignment operator works exactly the same way as
the =IF() function in spreadsheets.
Generating a time index for panel datasets

Problem: gretl has a $unit accessor, but not the equivalent for time. What should I use?
Solution:
series x = time
Comment: The special construct genr time and its variants are aware of whether a dataset is a
panel.
Sanitizing a list of regressors

Problem: I noticed that built-in commands like ols automatically drop collinear variables and put
the constant first. How can I achieve the same result for an estimator I’m writing?
Solution: No worry. The function below does just that
function list sanitize(list X)

list R = X - const
if nelem(R) < nelem(X)
R = const R
endif
return dropcoll(R)
end function
so for example the code below
nulldata 20
x = normal()
y = normal()
z = x + y # collinear
list A = x y const z
list B = sanitize(A)
list print A
list print B
returns
? list print A
x y const z
? list print B
const x y
Besides: it has been brought to our attention that some mischievous programs out there put the
constant last, instead of first, like God intended. We are not amused by this utter disrespect of
econometric tradition, but if you want to pursue the way of evil, it is rather simple to adapt the
script above to that effect.
Generating the “hat” values after an OLS regression

Problem: I’ve just run an OLS regression, and now I need the so-called the leverage values (also
known as the “hat” values). I know you can access residuals and fitted values through “dollar”
accessors, but nothing like that seems to be available for “hat” values.
Solution: “Hat” values are can be thought of as the diagonal of the projection matrix PX , or more
explicitly as
hi = x′i (X ′ X)−1 xi
where X is the matrix of regressors and x′i is its i-th row.
The reader is invited to study the code below, which offers four different solutions to the problem:
open data4-1.gdt --quiet

list X = const sqft bedrms baths
ols price X
# method 1
leverage --save --quiet
series h1 = lever
# these are necessary for what comes next

matrix mX = {X}
matrix iXX = invpd(mX’mX)
# method 2
series h2 = diag(qform(mX, iXX))
# method 3
series h3 = sumr(mX .* (mX*iXX))
# method 4
series h4 = NA
loop i=1..$nobs
matrix x = mX[i,]’
h4[i] = x’iXX*x
endloop
# verify
print h1 h2 h3 h4 --byobs
Comment: Solution 1 is the preferable one: it relies on the built-in leverage command, which
computes the requested series quite efficiently, taking care of missing values, possible restrictions
to the sample, etc.
However, three more are shown for didactical purposes, mainly to show the user how to manipulate
matrices. Solution 2 first constructs the PX matrix explicitly, via the qform function, and then takes
its diagonal; this is definitely not recommended (despite its compactness), since you generate a
much bigger matrix than you actually need and waste a lot of memory and CPU cycles in the
process. It doesn’t matter very much in the present case, since the sample size is very small, but
with a big dataset this could be a very bad idea.
Solution 3 is more clever, and relies on the fact that, if you define Z = X · (X ′ X)−1 , then hi could
also be written as
k
X
hi = x′i zi = xik zik
i=1
which is in turn equivalent to the sum of the elements of the i-th row of X ⊙ Z, where ⊙ is the
element-by-element product. In this case, your clever usage of matrix algebra would produce a
solution computationally much superior to solution 2.
Solution 4 is the most old-fashioned one, and employs an indexed loop. While this wastes practi-
cally no memory and employs no more CPU cycles in algebraic operations than strictly necessary,
it imposes a much greater burden on the hansl interpreter, since handling a loop is conceptually
more complex than a single operation. In practice, you’ll find that for any realistically-sized prob-
lem, solution 4 is much slower that solution 3.
Moving functions for time series

Problem: gretl provides native functions for moving averages, but I need a to compute a different
statistic on a sliding data window. Is there a way to do this without using loops?
Solution: One of the nice things of the list data type is that, if you define a list, then several
functions that would normally apply “vertically” to elements of a series apply “horizontally” across
the list. So for example, the following piece of code
open bjg.gdt
order = 12
list L = lg || lags(order-1, lg)
smpl +order ;
series movmin = min(L)

series movmax = max(L)
series movmed = median(L)
smpl full
computes the moving minimum, maximum and median of the lg series. Plotting the four series
would produce something similar to figure 21.1.
6.6
lg
6.4 movmin
movmed
6.2 movmax
5.8
5.6
5.4
5.2
4.8
4.6
1950 1952 1954 1956 1958 1960
Figure 21.1: “Moving” functions
Generating data with a prescribed correlation structure

Problem: I’d like to generate a bunch of normal random variates whose covariance matrix is exactly
equal to a given matrix Σ. How can I do this in gretl?
Solution: The Cholesky decomposition is your friend. If you want to generate data with a given
population covariance matrix, then all you have to do is post-multiply your pseudo-random data by
the Cholesky factor (transposed) of the matrix you want. For example:
set seed 123

S = {2,1;1,1}
T = 1000
X = mnormal(T, rows(S))
X = X * cholesky(S)’
eval mcov(X)
should give you
? eval mcov(X)
2.0016 1.0157
1.0157 1.0306
If, instead, you want your simulated data to have a given sample covariance matrix, you have to
apply the same technique twice: one for standardizing the data, another one for giving it the
covariance structure you want. Example:
S = {2,1;1,1}
T = 1000
X = mnormal(T, rows(S))
X = X * (cholesky(S)/cholesky(mcov(X)))’
eval mcov(X)
gives you
? eval mcov(X)
2 1
1 1
as required.
21.3 Neat tricks

Interaction dummies
Problem: You want to estimate the model yi = xi β1 + zi β2 + di β3 + (di · zi )β4 + εt , where di is a
dummy variable while xi and zi are vectors of explanatory variables.
Solution: As of version 1.9.12, gretl provides the ^ operator to make this operation easy. See
section 15.1 for details (especially example script 15.1). But back in my day, we used loops to do
that! Here’s how:
list X = x1 x2 x3
list Z = z1 z2
list dZ = null
loop foreach i Z
series d$i = d * $i
list dZ = dZ d$i
endloop
ols y X Z d dZ
Comment: It’s amazing what string substitution can do for you, isn’t it?
Realized volatility
Given data by the minute, you want to compute the “realized volatility” for the hour as
Problem: P
1 60 2
RVt = 60 τ=1 yt:τ . Imagine your sample starts at time 1:1.
Solution:
smpl --full
genr time
series minute = int(time/60) + 1
series second = time % 60
setobs minute second --panel
series rv = psd(y)^2
setobs 1 1
smpl second==1 --restrict
store foo rv
Comment: Here we trick gretl into thinking that our dataset is a panel dataset, where the minutes
are the “units” and the seconds are the “time”; this way, we can take advantage of the special
function psd(), panel standard deviation. Then we simply drop all observations but one per minute
and save the resulting data (store foo rv translates as “store in the gretl datafile foo.gdt the
series rv”).
Looping over two paired lists

Problem: Suppose you have two lists with the same number of elements, and you want to apply
some command to corresponding elements over a loop.
Solution:
list L1 = a b c
list L2 = x y z
k1 = 1
loop foreach i L1
k2 = 1
loop foreach j L2
if k1 == k2
ols $i 0 $j
endif
k2++
endloop
k1++
endloop
Comment: The simplest way to achieve the result is to loop over all possible combinations and
filter out the unneeded ones via an if condition, as above. That said, in some cases variable names
can help. For example, if
list Lx = x1 x2 x3
list Ly = y1 y2 y3
then we could just loop over the integers — quite intuitive and certainly more elegant:
loop i=1..3
ols y$i const x$i
endloop
Convolution / polynomial multiplication

Problem: How do I multiply polynomials? There’s no dedicated function to do that, and yet it’s a
fairly basic mathematical task.
Solution: Never fear! We have the conv2d function, which is a tool for a more general problem, but
includes polynomial multiplication as a special case..
Pm Pn
Suppose you want to multiply two finite-order polynomials P (x) = i=0 pi x i and Q(x) = i=0 qi x i .
What you want is the sequence of coefficients of the polynomial
m+n
X
R(x) = P (x) · Q(x) = rk x k
k=0
where
k
X
rk = pi qk−i
i=0
is the convolution of the pi and qi coefficients. The same operation can be performed via the FFT,
but in most cases using conv2d is quicker and more natural.
As an example, we’ll use the same one we used in Section 30.5: consider the multiplication of two
polynomials:
P (x) = 1 + 0.5x
Q(x) = 1 + 0.3x − 0.8x 2
R(x) = P (x) · Q(x) = 1 + 0.8x − 0.65x 2 − 0.4x 3
The following code snippet performs all the necessary calculations:
p = {1; 0.5}
q = {1; 0.3; -0.8}
r = conv2d(p, q)
print r
Runnning the above produces
r (4 x 1)
1
0.8
-0.65
-0.4
which is indeed the desired result. Note that the same computation could also be performed via
the filter function, at the price of slightly more elaborate syntax.
Comparing two lists

Problem: How can I tell if two lists contain the same variables (not necessarily in the same order)?
Solution: In many respects, lists are like sets, so it makes sense to use the so-called “symmetric
difference” operator, which is defined as
A △ B = (A \ B) ∪ (B \ A)
where in this context backslash represents the relative complement operator, such that
A \ B = {x ∈ A | x ̸∈ B}
In practice we first check if there are any series in A but not in B, then we perform the reverse check.
If the union of the two results is an empty set, then the lists must contain the same variables. The
hansl syntax for this would be something like
scalar NotTheSame = nelem((A-B) || (B-A)) > 0
Reordering list elements

Problem: Is there a way to reorder list elements?
Solution: You can use the fact that a list can be cast into a vector of integers and then manipulated
via ordinary matrix syntax. So, for example, if you wanted to “flip” a list you may just use the
mreverse function. For example:

list X = 3 6 9 12
matrix tmp = X
list revX = mreverse(tmp’)
list X print
list revX print
will produce
? list X print
D1 D872 EEN_DIS GCD
? list revX print
GCD EEN_DIS D872 D1
Plotting an asymmetric confidence interval

Problem: “I like the look of the --band option to the gnuplot and plot commands, but it’s set up
for plotting a symmetric interval and I want to show an asymmetric one.”
Solution: Any interval is by construction symmetrical about its mean at each observation. So you
just need to perform a little tweak. Say you want to plot a series x along with a band defined by the
two series top and bot. Here we go:
# create series for mid-point and deviation

series mid = (top + bot)/2
series dev = top - mid
gnuplot x --band=mid,dev --time-series --with-lines --output=display
Cross-validation
Problem: “I’d like to compute the so-called leave-one-out cross-validation criterion for my regression.
Is there a command in gretl?”
If you have a sample with n observations, the “leave-one-out” cross-validation criterion can be
mechanically computed by running n regressions in which one observation at a time is omitted
and all the other ones are used to forecast its value. The sum of the n squared forecast errors is
the statistic we want. Fortunately, there is no need to do so. It is possible to prove that the same
statistic can be computed as
Xn
CV = [ûi /(1 − hi )]2 ,
i=1
where hi is the i-th element of the “hat” matrix (see section 21.2) from a regression on the whole
sample.
This method is natively provided by gretl as a side benefit to the leverage command, that stores
the CV criterion into the $test accessor. The following script shows the equivalence of the two
approaches:
set verbose off

open data4-1.gdt
list X = const sqft bedrms baths
# compute the CV criterion the silly way
scalar CV = 0
matrix mX = {X}
loop i = 1 .. $nobs
xi = mX[i,]
yi = price[i]
smpl obs != i --restrict
ols price X --quiet
smpl full
scalar fe = yi - xi * $coeff
CV += fe^2
endloop
printf "CV = %g\n", CV
# the smart way
ols price X --quiet

leverage --quiet
printf "CV = %g\n", $test
Is my matrix result broken?

Problem: “Most of the matrix manipulation functions available in gretl flag an error if something
goes wrong, but there’s no guarantee that every matrix computation will return an entirely finite
matrix, containing no infinities or NaNs. So how do I tell if I’ve got a fully valid matrix?”
Solution: Given a matrix m, the call “ok(m)” returns a matrix with the same dimensions as m, with
elements 1 for finite values and 0 for infinities or NaNs. A matrix as a whole is OK if it has no
elements which fail this test, so here’s a suitable check for a “broken” matrix, using the logical NOT
operator, “!”:
sumc(sumr(!ok(m))) > 0
If this gives a non-zero return value you know that m contains at least one non-finite element.
Part II
Econometric methods
194
Chapter 22
Robust covariance matrix estimation
22.1 Introduction
Consider (once again) the linear regression model
y = Xβ + u (22.1)
where y and u are T -vectors, X is a T × k matrix of regressors, and β is a k-vector of parameters.

As is well known, the estimator of β given by Ordinary Least Squares (OLS) is
β̂ = (X ′ X)−1 X ′ y (22.2)
If the condition E(u|X) = 0 is satisfied, this is an unbiased estimator; under somewhat weaker
conditions the estimator is biased but consistent. It is straightforward to show that when the OLS
estimator is unbiased (that is, when E(β̂ − β) = 0), its variance is

Var(β̂) = E (β̂ − β)(β̂ − β)′ = (X ′ X)−1 X ′ ΩX(X ′ X)−1 (22.3)
where Ω = E(uu′ ) is the covariance matrix of the error terms.

Under the assumption that the error terms are independently and identically distributed (iid) we
can write Ω = σ 2 I, where σ 2 is the (common) variance of the errors (and the covariances are zero).
In that case (22.3) simplifies to the “classical” formula,
Var(β̂) = σ 2 (X ′ X)−1 (22.4)
If the iid assumption is not satisfied, two things follow. First, it is possible in principle to construct
a more efficient estimator than OLS—for instance some sort of Feasible Generalized Least Squares
(FGLS). Second, the simple “classical” formula for the variance of the least squares estimator is no
longer correct, and hence the conventional OLS standard errors — which are just the square roots
of the diagonal elements of the matrix defined by (22.4) — do not provide valid means of statistical
inference.
In the recent history of econometrics there are broadly two approaches to the problem of non-
iid errors. The “traditional” approach is to use an FGLS estimator. For example, if the departure
from the iid condition takes the form of time-series dependence, and if one believes that this
could be modeled as a case of first-order autocorrelation, one might employ an AR(1) estimation
method such as Cochrane–Orcutt, Hildreth–Lu, or Prais–Winsten. If the problem is that the error
variance is non-constant across observations, one might estimate the variance as a function of the
independent variables and then perform weighted least squares, using as weights the reciprocals
of the estimated variances.
While these methods are still in use, an alternative approach has found increasing favor: that is,
use OLS but compute standard errors (or more generally, covariance matrices) that are robust with
respect to deviations from the iid assumption. This is typically combined with an emphasis on
using large datasets—large enough that the researcher can place some reliance on the (asymptotic)
consistency property of OLS. This approach has been enabled by the availability of cheap computing
power. The computation of robust standard errors and the handling of very large datasets were
daunting tasks at one time, but now they are unproblematic. The other point favoring the newer
methodology is that while FGLS offers an efficiency advantage in principle, it often involves making
195
Chapter 22. Robust covariance matrix estimation 196
additional statistical assumptions which may or may not be justified, which may not be easy to test
rigorously, and which may threaten the consistency of the estimator — for example, the “common
factor restriction” that is implied by traditional FGLS “corrections” for autocorrelated errors.
James Stock and Mark Watson’s Introduction to Econometrics illustrates this approach at the level of
undergraduate instruction: many of the datasets they use comprise thousands or tens of thousands
of observations; FGLS is downplayed; and robust standard errors are reported as a matter of course.
In fact, the discussion of the classical standard errors (labeled “homoskedasticity-only”) is confined
to an Appendix.
Against this background it may be useful to set out and discuss all the various options offered
by gretl in respect of robust covariance matrix estimation. The first point to notice is that gretl
produces “classical” standard errors by default (in all cases apart from GMM estimation). In script
mode you can get robust standard errors by appending the --robust flag to estimation commands.
In the GUI program the model specification dialog usually contains a “Robust standard errors”
check box, along with a “configure” button that is activated when the box is checked. The configure
button takes you to a configuration dialog (which can also be reached from the main menu bar:
Tools → Preferences → General → HCCME). There you can select from a set of possible robust
estimation variants, and can also choose to make robust estimation the default.
The specifics of the available options depend on the nature of the data under consideration —
cross-sectional, time series or panel— and also to some extent the choice of estimator. (Although
we introduced robust standard errors in the context of OLS above, they may be used in conjunction
with other estimators too.) The following three sections of this chapter deal with matters that are
specific to the three sorts of data just mentioned. Note that additional details regarding covariance
matrix estimation in the context of GMM are given in chapter 27.
We close this introduction with a brief statement of what “robust standard errors” can and cannot
achieve. They can provide for asymptotically valid statistical inference in models that are basically
correctly specified, but in which the errors are not iid. The “asymptotic” part means that they
may be of little use in small samples. The “correct specification” part means that they are not a
magic bullet: if the error term is correlated with the regressors, so that the parameter estimates
themselves are biased and inconsistent, robust standard errors will not save the day.
22.2 Cross-sectional data and the HCCME

With cross-sectional data, the most likely departure from iid errors is heteroskedasticity (non-
constant variance).1 In some cases one may be able to arrive at a judgment regarding the likely
form of the heteroskedasticity, and hence to apply a specific correction. The more common case,
however, is where the heteroskedasticity is of unknown form. We seek an estimator of the covari-
ance matrix of the parameter estimates that retains its validity, at least asymptotically, in face of
unspecified heteroskedasticity. It is not obvious, a priori, that this should be possible, but White
(1980) showed that
d h (β̂) = (X ′ X)−1 X ′ Ω̂X(X ′ X)−1
Var (22.5)
does the trick. (As usual in statistics, we need to say “under certain conditions”, but the conditions
are not very restrictive.) Ω̂ is in this context a diagonal matrix, whose non-zero elements may be
estimated using squared OLS residuals. White referred to (22.5) as a heteroskedasticity-consistent
covariance matrix estimator (HCCME).
Davidson and MacKinnon (2004, chapter 5) offer a useful discussion of several variants on White’s
HCCME theme. They refer to the original variant of (22.5) — in which the diagonal elements of Ω̂
are estimated directly by the squared OLS residuals, û2t — as HC0 . (The associated standard errors
are often called “White’s standard errors”.) The various refinements of White’s proposal share a
common point of departure, namely the idea that the squared OLS residuals are likely to be “too
1 In some specialized contexts spatial autocorrelation may be an issue. Gretl does not have any built-in methods to
handle this and we will not discuss it here.

small” on average. This point is quite intuitive. The OLS parameter estimates, β̂, satisfy by design
the criterion that the sum of squared residuals,
X X 2
û2t = yt − Xt β̂
is minimized for given X and y. Suppose that β̂ ≠ β. This is almost certain to be the case: even if
OLS is not biased, it would be a miracle if the β̂ calculated from any finite sample were
P exactly equal
to β. But in that case thePsum of squares of the true, unobserved errors, u2t = (yt − Xt β)2 is
P
bound to be greater than û2t . The elaborated variants on HC0 take this point on board as follows:
• HC1 : Applies a degrees-of-freedom correction, multiplying the HC0 matrix by T /(T − k).
• HC2 : Instead of using û2t for the diagonal elements of Ω̂, uses û2t /(1 − ht ), where ht =
Xt (X ′ X)−1 Xt′ , the t th diagonal element of the projection matrix, P , which has the property
that P · y = ŷ. The relevance of ht is that if the variance of all the ut is σ 2 , the expectation
of û2t is σ 2 (1 − ht ), or in other words, the ratio û2t /(1 − ht ) has expectation σ 2 . As Davidson
and MacKinnon show, 0 ≤ ht < 1 for all t, so this adjustment cannot reduce the the diagonal
elements of Ω̂ and in general revises them upward.
• HC3 : Uses û2t /(1 − ht )2 . The additional factor of (1 − ht ) in the denominator, relative to
HC2 , may be justified on the grounds that observations with large variances tend to exert a
lot of influence on the OLS estimates, so that the corresponding residuals tend to be under-
estimated. See Davidson and MacKinnon for a fuller explanation.
• HC3a : Implements the jackknife approach from MacKinnon and White (1985). (HC3 is a close
approximation of this.)
The relative merits of these variants have been explored by means of both simulations and the-
oretical analysis. Unfortunately there is not a clear consensus on which is “best”. Davidson and
MacKinnon argue that the original HC0 is likely to perform worse than the others; nonetheless,
“White’s standard errors” are reported more often than the more sophisticated variants and there-
fore, for reasons of comparability, HC0 is the default HCCME in gretl.
If you wish to use HC1 , HC2 , HC3 , or HC3a , you can arrange for this in either of two ways. In script
mode, you can do, for example,
set hc_version 2
In the GUI program you can go to the HCCME configuration dialog, as noted above, and choose any
of these variants to be the default.
22.3 Time series data and HAC covariance matrices

Heteroskedasticity may be an issue with time series data too, but it is unlikely to be the only, or
even the primary, concern.
One form of heteroskedasticity is common in macroeconomic time series, but is fairly easily dealt
with. That is, in the case of strongly trending series such as Gross Domestic Product, aggregate
consumption, aggregate investment, and so on, higher levels of the variable in question are likely
to be associated with higher variability in absolute terms. The obvious “fix”, employed in many
macroeconometric studies, is to use the logs of such series rather than the raw levels. Provided the
proportional variability of such series remains roughly constant over time, the log transformation
is effective.
Other forms of heteroskedasticity may resist the log transformation, but may demand a special
treatment distinct from the calculation of robust standard errors. We have in mind here autore-
gressive conditional heteroskedasticity, for example in the behavior of asset prices, where large
disturbances to the market may usher in periods of increased volatility. Such phenomena call for
specific estimation strategies, such as GARCH (see chapter 31).
Despite the points made above, some residual degree of heteroskedasticity may be present in time
series data: the key point is that in most cases it is likely to be combined with serial correlation
(autocorrelation), hence demanding a special treatment. In White’s approach, Ω̂, the estimated
covariance matrix of the ut , remains conveniently diagonal: the variances, E(u2t ), may differ by
t but the covariances, E(ut us ), are all zero. Autocorrelation in time series data means that at
least some of the the off-diagonal elements of Ω̂ should be non-zero. This introduces a substantial
complication and requires another piece of terminology; estimates of the covariance matrix that
are asymptotically valid in face of both heteroskedasticity and autocorrelation of the error process
are termed HAC (heteroskedasticity and autocorrelation consistent).
The issue of HAC estimation is treated in more technical terms in chapter 27. Here we try to
convey some of the intuition at a more basic level. We begin with a general comment: residual
autocorrelation is not so much a property of the data, as a symptom of an inadequate model. Data
may be persistent though time, and if we fit a model that does not take this aspect into account
properly, we end up with a model with autocorrelated disturbances. Conversely, it is often possible
to mitigate or even eliminate the problem of autocorrelation by including relevant lagged variables
in a time series model, or in other words, by specifying the dynamics of the model more fully. HAC
estimation should not be seen as the first resort in dealing with an autocorrelated error process.
That said, the “obvious” extension of White’s HCCME to the case of autocorrelated errors would
seem to be this: estimate the off-diagonal elements of Ω̂ (that is, the autocovariances, E(ut us ))
using, once again, the appropriate OLS residuals: ω̂ts = ût ûs . This is basically right, but demands
an important amendment. We seek a consistent estimator, one that converges towards the true Ω
as the sample size tends towards infinity. This can’t work if we allow unbounded serial depen-
dence. Bigger samples will enable us to estimate more of the true ωts elements (that is, for t and
s more widely separated in time) but will not contribute ever-increasing information regarding the
maximally separated ωts pairs, since the maximal separation itself grows with the sample size.
To ensure consistency, we have to confine our attention to processes exhibiting temporally limited
dependence, or in other words cut off the computation of the ω̂ts values at some maximum value
of p = t − s (where p is treated as an increasing function of the sample size, T , although it cannot
increase in proportion to T ).
The simplest variant of this idea is to truncate the computation at some finite lag order p, where
p grows as, say, T 1/4 . The trouble with this is that the resulting Ω̂ may not be a positive definite
matrix. In practical terms, we may end up with negative estimated variances. One solution to this
problem is offered by The Newey–West estimator (Newey and West, 1987), which assigns declining
weights to the sample autocovariances as the temporal separation increases.
To understand this point it is helpful to look more closely at the covariance matrix given in (22.5),
namely,
(X ′ X)−1 (X ′ Ω̂X)(X ′ X)−1
This is known as a “sandwich” estimator. The bread, which appears on both sides, is (X ′ X)−1 .
This is a k × k matrix, and is also the key ingredient in the computation of the classical covariance
matrix. The filling in the sandwich is
Σ̂ = X′ Ω̂ X
(k×k) (k×T ) (T ×T ) (T ×k)
It can be proven that, under mild regularity conditions, T −1 Σ̂ is a consistent estimator of the long-
run covariance matrix of the random k-vector xt · ut .
From a computational point of view, it is neither necessary nor desirable to store the (potentially
very large) T × T matrix Ω̂ as such. Rather, one computes the sandwich filling by summation as a
weighted sum:
p
X
Σ̂ = Γ̂ (0) + wj Γ̂ (j) + Γ̂ ′ (j)
j=1
where wj is the weight given to lag j > 0 and the k × k matrix Γ̂ (j), for j ≥ 0, is given by
T
X
Γ̂ (j) = ût ût−j Xt′ Xt−j ;
t=j+1
that is, the sample autocovariance matrix of xt · ut at lag j, apart from a scaling factor T .
This leaves two questions. How exactly do we determine the maximum lag length or “bandwidth”,
p, of the HAC estimator? And how exactly are the weights wj to be determined? We will return to
the (difficult) question of the bandwidth shortly. As regards the weights, gretl offers three variants.
The default is the Bartlett kernel, as used by Newey and West. This sets

 1− j j≤p
p+1
wj =
 0 j>p
so the weights decline linearly as j increases. The other two options are the Parzen kernel and the
Quadratic Spectral (QS) kernel. For the Parzen kernel,
3

2
 1 − 6aj + 6aj 0 ≤ aj ≤ 0.5


3
wj = 2(1 − aj ) 0.5 < aj ≤ 1

0 a >1


j
where aj = j/(p + 1), and for the QS kernel,

!
25 sin mj
wj = − cos mj
12π 2 d2j mj
where dj = j/p and mj = 6π di /5.

Figure 22.1 shows the weights generated by these kernels, for p = 4 and j = 1 to 9.
Figure 22.1: Three HAC kernels
Bartlett Parzen QS
In gretl you select the kernel using the set command with the hac_kernel parameter:
set hac_kernel parzen

set hac_kernel qs
set hac_kernel bartlett
Selecting the HAC bandwidth

The asymptotic theory developed by Newey, West and others tells us in general terms how the
HAC bandwidth, p, should grow with the sample size, T — that is, p should grow in proportion
to some fractional power of T . Unfortunately this is of little help to the applied econometrician,
working with a given dataset of fixed size. Various rules of thumb have been suggested, and gretl
implements two such. The default is p = 0.75T 1/3 , as recommended by Stock and Watson (2003).
An alternative is p = 4(T /100)2/9 , as in Wooldridge (2002b). In each case one takes the integer
part of the result. These variants are labeled nw1 and nw2 respectively, in the context of the set
command with the hac_lag parameter. That is, you can switch to the version given by Wooldridge
with
set hac_lag nw2
As shown in Table 22.1 the choice between nw1 and nw2 does not make a great deal of difference.
T p (nw1) p (nw2)
50 2 3
100 3 4
150 3 4
200 4 4
300 5 5
400 5 5
Table 22.1: HAC bandwidth: two rules of thumb
You also have the option of specifying a fixed numerical value for p, as in
set hac_lag 6
In addition you can set a distinct bandwidth for use with the Quadratic Spectral kernel (since this
need not be an integer). For example,
set qs_bandwidth 3.5
Prewhitening and data-based bandwidth selection

An alternative approach is to deal with residual autocorrelation by attacking the problem from two
sides. The intuition behind the technique known as VAR prewhitening (Andrews and Monahan,
1992) can be illustrated by a simple example. Let xt be a sequence of first-order autocorrelated
random variables
xt = ρxt−1 + ut
The long-run variance of xt can be shown to be
VLR (ut )
VLR (xt ) =
(1 − ρ)2
In most cases, ut is likely to be less autocorrelated than xt , so a smaller bandwidth should suffice.
Estimation of VLR (xt ) can therefore proceed in three steps: (1) estimate ρ; (2) obtain a HAC estimate
of ût = xt − ρ̂xt−1 ; and (3) divide the result by (1 − ρ)2 .
The application of the above concept to our problem implies estimating a finite-order Vector Au-
toregression (VAR) on the vector variables ξt = Xt ût . In general, the VAR can be of any order, but
in most cases 1 is sufficient; the aim is not to build a watertight model for ξt , but just to “mop up”
a substantial part of the autocorrelation. Hence, the following VAR is estimated
ξt = Aξt−1 + εt
Then an estimate of the matrix X ′ ΩX can be recovered via
(I − Â)−1 Σ̂ε (I − Â′ )−1

where Σ̂ε is any HAC estimator, applied to the VAR residuals.

You can ask for prewhitening in gretl using
set hac_prewhiten on
There is at present no mechanism for specifying an order other than 1 for the initial VAR.
A further refinement is available in this context, namely data-based bandwidth selection. It makes
intuitive sense that the HAC bandwidth should not simply be based on the size of the sample,
but should somehow take into account the time-series properties of the data (and also the kernel
chosen). A nonparametric method for doing this was proposed by Newey and West (1994); a good
concise account of the method is given in Hall (2005). This option can be invoked in gretl via
set hac_lag nw3
This option is the default when prewhitening is selected, but you can override it by giving a specific
numerical value for hac_lag.
Even the Newey–West data-based method does not fully pin down the bandwidth for any particular
sample. The first step involves calculating a series of residual covariances. The length of this series
is given as a function of the sample size, but only up to a scalar multiple — for example, it is given
as O(T 2/9 ) for the Bartlett kernel. Gretl uses an implied multiple of 1.
Long-run variance
Let us expand a little more on the subject of the long-run variance that was mentioned in the
previous subsection and the associated tools offered by gretl for scripting. (You may also want to
check out the reference for the lrcovar function for the multivariate case.) As is well known, the
variance of the average of T random variables x1 , x2 , . . . , xT with equal variance σ 2 equals σ 2 /T if
the data are uncorrelated. In this case, the sample variance of xt over the sample size provides a
consistent estimator.
PT
If, however, there is serial correlation among the xt s, the variance of X̄ = T −1 t=1 xt must be
estimated differently. One of the most widely used statistics for this purpose is a nonparametric
kernel estimator with the Bartlett kernel defined as
 
TX
−k k
X
ω̂2 (k) = T −1  wi (xt − X̄)(xt−i − X̄) , (22.6)
t=k i=−k
where the integer k is known as the window size and the wi terms are the so-called Bartlett weights,
|i|
defined as wi = 1 − k+1 . It can be shown that, for k large enough, ω̂2 (k)/T yields a consistent
estimator of the variance of X̄.
gretl implements this estimator by means of the function lrvar(). This function takes one re-
quired argument, namely the series whose long-run variance is to be estimated, followed by two
optional arguments. The first of these can be used to supply a value for k; if it is omitted or nega-
tive, the popular choice T 1/3 is used. The second allows specification of an assumed value for the
population mean of X, which then replaces X̄ in the variance calculation. Usage is illustrated below.
# automatic window size; use xbar for mean

lrs2 = lrvar(x)
# set a window size of 12
lrs2 = lrvar(x, 12)
# set window size and impose assumed mean of zero
lrs2 = lrvar(x, 12, 0)
# impose mean zero, automatic window size
lrs2 = lrvar(x, -1, 0)
VARs: a special case

A well-specified vector autoregression (VAR) will generally include enough lags of the dependent
variables to obviate the problem of residual autocorrelation, in which case HAC estimation is
redundant—although there may still be a need to correct for heteroskedasticity. For that rea-
son plain HCCME, and not HAC, is the default when the --robust flag is given in the context of the
var command. However, if for some reason you need HAC you can force the issue by giving the
option --robust-hac.
22.4 Special issues with panel data

Since panel data have both a time-series and a cross-sectional dimension one might expect that, in
general, robust estimation of the covariance matrix would require handling both heteroskedasticity
and autocorrelation (the HAC approach). In addition, some special features of panel data require
attention.
• The variance of the error term may differ across the cross-sectional units.
• The covariance of the errors across the units may be non-zero in each time period.
• If the “between” variation is not swept out, the errors may exhibit autocorrelation, not in the
usual time-series sense but in the sense that the mean value of the error term may differ
across units. This is relevant when estimation is by pooled OLS.
Gretl currently offers two robust covariance matrix estimators specifically for panel data. These are
available for models estimated via fixed effects, random effects, pooled OLS, and pooled two-stage
least squares. The default robust estimator is that suggested by Arellano (2003), which is HAC
provided the panel is of the “large n, small T ” variety (that is, many units are observed in relatively
few periods). The Arellano estimator is
 
n
′
−1 X ′ ′
−1
Σ̂A = X X  Xi ûi ûi Xi  X ′ X
i=1
where X is the matrix of regressors (with the group means subtracted in the case of fixed effects, or
quasi-demeaned in the case of random effects) ûi denotes the vector of residuals for unit i, and n
is the number of cross-sectional units.2 Cameron and Trivedi (2005) make a strong case for using
this estimator; they note that the ordinary White HCCME can produce misleadingly small standard
errors in the panel context because it fails to take autocorrelation into account.3 In addition Stock
and Watson (2008) show that the White HCCME is inconsistent in the fixed-effects panel context for
fixed T > 2.
In cases where autocorrelation is not an issue the estimator proposed by Beck and Katz (1995)
and discussed by Greene (2003, chapter 13) may be appropriate. This estimator, which takes into
account contemporaneous correlation across the units and heteroskedasticity by unit, is
 
n X
n
−1 −1
X
Σ̂BK = X ′ X σ̂ij Xi′ Xj  X ′ X


i=1 j=1
The covariances σ̂ij are estimated via

û′i ûj
σ̂ij =
T
where T is the length of the time series for each unit. Beck and Katz call the associated standard
errors “Panel-Corrected Standard Errors” (PCSE). This estimator can be invoked in gretl via the
command
2 This variance estimator is also known as the “clustered (over entities)” estimator.
3 See also Cameron and Miller (2015) for a discussion of the Arellano-type estimator in the context of the random
effects model.
set pcse on
The Arellano default can be re-established via
set pcse off
(Note that regardless of the pcse setting, the robust estimator is not used unless the --robust flag
is given, or the “Robust” box is checked in the GUI program.)
22.5 The cluster-robust estimator

One further variance estimator is available in gretl, namely the “cluster-robust” estimator. This may
be appropriate (for cross-sectional data, mostly) when the observations naturally fall into groups or
clusters, and one suspects that the error term may exhibit dependency within the clusters and/or
have a variance that differs across clusters. Such clusters may be binary (e.g. employed versus
unemployed workers), categorical with several values (e.g. products grouped by manufacturer) or
ordinal (e.g. individuals with low, middle or high education levels).
For linear regression models estimated via least squares the cluster estimator is defined as
 
m
−1 −1
X
Σ̂C = X ′ X Xj′ ûj û′j Xj  X ′ X


j=1
where m denotes the number of clusters, and Xj and ûj denote, respectively, the matrix of regres-
sors and the vector of residuals that fall within cluster j. As noted above, the Arellano variance
estimator for panel data models is a special case of this, where the clustering is by panel unit.
For models estimated by the method of Maximum Likelihood (in which case the standard variance
estimator is the inverse of the negative Hessian, H), the cluster estimator is
 
m
X
Σ̂C = H −1  Gj′ Gj  H −1
j=1
where Gj is the sum of the “score” (that is, the derivative of the loglikelihood with respect to the
parameter estimates) across the observations falling within cluster j.
It is common to apply a degrees of freedom adjustment to these estimators (otherwise the variance
may appear misleadingly small in comparison with other estimators, if the number of clusters is
small). In the least squares case the factor is (m/(m − 1)) × (n − 1)/(n − k), where n is the total
number of observations and k is the number of parameters estimated; in the case of ML estimation
the factor is just m/(m − 1).
Availability and syntax

The cluster-robust estimator is currently available for models estimated via OLS and TSLS, and also
for most ML estimators other than those specialized for time-series data: binary logit and pro-
bit, ordered logit and probit, multinomial logit, Tobit, interval regression, biprobit, count models
and duration models. Additionally, the same option is available for generic maximum likelihood
estimation as provided by the mle command (see chapter 26 for extra details).
In all cases the syntax is the same: you give the option flag --cluster= followed by the name of
the series to be used to define the clusters, as in
ols y 0 x1 x2 --cluster=cvar
The specified clustering variable must (a) be defined (not missing) at all observations used in esti-
mating the model and (b) take on at least two distinct values over the estimation range. The clusters
are defined as sets of observations having a common value for the clustering variable. It is generally
expected that the number of clusters is substantially less than the total number of observations.
Chapter 23
Panel data
A panel dataset is one in which each of N > 1 units (sometimes called “individuals” or “groups”) is
observed over time. In a balanced panel there are T > 1 observations on each unit; more generally
the number of observations may differ by unit. In the following we index units by i and time by t.
To allow for imbalance in a panel we use the notation Ti to refer to the number of observations for
unit or individual i.
23.1 Estimation of panel models

Pooled Ordinary Least Squares
The simplest estimator for panel data is pooled OLS. In most cases this is unlikely to be adequate,
but it provides a baseline for comparison with more complex estimators.
If you estimate a model on panel data using OLS an additional test item becomes available. In
the GUI model window this is the item “panel specification” under the Tests menu; the script
counterpart is the panspec command.
To take advantage of this test, you should specify a model without any dummy variables represent-
ing cross-sectional units. The test compares pooled OLS against the principal alternatives, the fixed
effects and random effects models. These alternatives are explained in the following section.
The fixed and random effects models

In the graphical interface these options are found under the menu item “Model/Panel/Fixed and
random effects”. In the command-line interface one uses the panel command, with or without
the --random-effects option. (The --fixed-effects option is also allowed but not strictly
necessary, being the default.)
This section explains the nature of these models and comments on their estimation via gretl.
The pooled OLS specification may be written as
yit = Xit β + uit (23.1)
where yit is the observation on the dependent variable for cross-sectional unit i in period t, Xit
is a 1 × k vector of independent variables observed for unit i in period t, β is a k × 1 vector of
parameters, and uit is an error or disturbance term specific to unit i in period t.
The fixed and random effects models have in common that they decompose the unitary pooled
error term, uit . For the fixed effects model we write uit = αi + εit , yielding
yit = Xit β + αi + εit (23.2)
That is, we decompose uit into a unit-specific and time-invariant component, αi , and an observation-
specific error, εit .1 The αi s are then treated as fixed parameters (in effect, unit-specific y-intercepts),
which are to be estimated. This can be done by including a dummy variable for each cross-sectional
1 It is possible to break a third component out of u , namely w , a shock that is time-specific but common to all the
it t
units in a given period. In the interest of simplicity we do not pursue that option here.
204
Chapter 23. Panel data 205
unit (and suppressing the global constant). This is sometimes called the Least Squares Dummy Vari-
ables (LSDV) method. Alternatively, one can subtract the group mean from each of variables and
estimate a model without a constant. In the latter case the dependent variable may be written as
ỹit = yit − ȳi
The “group mean”, ȳi , is defined as

Ti
1 X
ȳi = yit
Ti t=1
where Ti is the number of observations for unit i. An exactly analogous formulation applies to the
independent variables. Given parameter estimates, β̂, obtained using such de-meaned data we can
recover estimates of the αi s using
Ti
1 X
α̂i = yit − Xit β̂
Ti t=1
These two methods (LSDV, and using de-meaned data) are numerically equivalent. gretl takes the
approach of de-meaning the data. If you have a small number of cross-sectional units, a large num-
ber of time-series observations per unit, and a large number of regressors, it is more economical
in terms of computer memory to use LSDV. If need be you can easily implement this manually. For
example,
genr unitdum
ols y x du_*
(See Chapter 10 for details on unitdum).

The α̂i estimates are not printed as part of the standard model output in gretl (there may be a large
number of these, and typically they are not of much inherent interest). However you can retrieve
them after estimation of the fixed effects model if you wish. In the graphical interface, go to the
“Save” menu in the model window and select “per-unit constants”. In command-line mode, you can
do series newname = $ahat, where newname is the name you want to give the series.
For the random effects model we write uit = vi + εit , so the model becomes
yit = Xit β + vi + εit (23.3)
In contrast to the fixed effects model, the vi s are not treated as fixed parameters, but as random
drawings from a given probability distribution.
The celebrated Gauss–Markov theorem, according to which OLS is the best linear unbiased esti-
mator (BLUE), depends on the assumption that the error term is independently and identically
distributed (IID). In the panel context, the IID assumption means that E(u2it ), in relation to equa-
tion 23.1, equals a constant, σu2 , for all i and t, while the covariance E(uis uit ) equals zero for all
s ≠ t and the covariance E(ujt uit ) equals zero for all j ≠ i.
If these assumptions are not met—and they are unlikely to be met in the context of panel data —
OLS is not the most efficient estimator. Greater efficiency may be gained using generalized least
squares (GLS), taking into account the covariance structure of the error term.
Consider observations on a given unit i at two different times s and t. From the hypotheses above
it can be worked out that Var(uis ) = Var(uit ) = σv2 + σε2 , while the covariance between uis and uit
is given by E(uis uit ) = σv2 .
In matrix notation, we may group all the Ti observations for unit i into the vector yi and write it as
yi = Xi β + ui (23.4)
The vector ui , which includes all the disturbances for individual i, has a variance–covariance matrix
given by
Var(ui ) = Σi = σε2 I + σv2 J (23.5)
where J is a square matrix with all elements equal to 1. It can be shown that the matrix
θi
Ki = I − J,
Ti
r
where θi = 1 − σε2 / σε2 + Ti σv2 , has the property
Ki ΣKi′ = σε2 I
It follows that the transformed system
Ki yi = Ki Xi β + Ki ui (23.6)
satisfies the Gauss–Markov conditions, and OLS estimation of (23.6) provides efficient inference.
But since
Ki yi = yi − θi ȳi
GLS estimation is equivalent to OLS using “quasi-demeaned” variables; that is, variables from which
we subtract a fraction θ of their average.2 Notice that for σε2 → 0, θ → 1, while for σv2 → 0, θ → 0.
This means that if all the variance is attributable to the individual effects, then the fixed effects
estimator is optimal; if, on the other hand, individual effects are negligible, then pooled OLS turns
out, unsurprisingly, to be the optimal estimator.
To implement the GLS approach we need to calculate θ, which in turn requires estimates of the
two variances σε2 and σv2 . (These are often referred to as the “within” and “between” variances
respectively, since the former refers to variation within each cross-sectional unit and the latter to
variation between the units). Several means of estimating these magnitudes have been suggested in
the literature (see Baltagi, 1995); by default gretl uses the method of Swamy and Arora (1972): σε2
is estimated by the residual variance from the fixed effects model, and σv2 is estimated indirectly
with the help of the “between” regression which uses the group means of all the relevant variables:
is,
ȳi = X̄i β + ei
The residual variance from this regression, se2 , can be shown to estimate the sum σv2 + σε2 /T . An
estimate of σv2 can therefore be obtained by subtracting 1/T times the estimate of σε2 from se2 :
σ̂v2 = se2 − σ̂ε2 /T (23.7)
Alternatively, if the --nerlove option is given, gretl uses the method suggested by Nerlove (1971).
In this case σv2 is estimated as the sample variance of the fixed effects, α̂i ,
n
1 X ¯
2
σ̂v2 = α̂i − α̂ (23.8)
N − 1 i=1
¯ is the mean of the estimated fixed effects.

where N is the number of individuals and α̂
Swamy and Arora’s equation (23.7) involves T , hence assuming a balanced panel. When the number
of time series observations, Ti , differs across individuals some sort of adjustment is needed. By
default gretl follows Stata by using the harmonic mean of the Ti s in place of T . It may be argued,
however, that a more substantial adjustment is called for in the unbalanced case. Baltagi and Chang
(1994) recommend a variant of Swamy–Arora which involves Ti -weighted estimation of the between
regression, on the basis that units with more observations will be more informative about the vari-
ance of interest. In gretl one can switch to the Baltagi–Chang variant by giving the --unbalanced
2 In a balanced panel, the value of θ is common to all individuals, otherwise it differs depending on the value of Ti .
option with the panel command. But the gain in efficiency from doing so may well be slim; for a
discussion of this point and related matters see Cottrell (2017). Unbalancedness also affects the
Nerlove (1971) estimator, but the econometric literature offers no guidance on the details. Gretl
uses the weighted average of the fixed effects as a natural extension of the original method. Again,
see Cottrell (2017) for further details.
Choice of estimator
Which panel method should one use, fixed effects or random effects?
One way of answering this question is in relation to the nature of the data set. If the panel comprises
observations on a fixed and relatively small set of units of interest (say, the member states of the
European Union), there is a presumption in favor of fixed effects. If it comprises observations on a
large number of randomly selected individuals (as in many epidemiological and other longitudinal
studies), there is a presumption in favor of random effects.
Besides this general heuristic, however, various statistical issues must be taken into account.
1. Some panel data sets contain variables whose values are specific to the cross-sectional unit
but which do not vary over time. If you want to include such variables in the model, the fixed
effects option is simply not available. When the fixed effects approach is implemented using
dummy variables, the problem is that the time-invariant variables are perfectly collinear with
the per-unit dummies. When using the approach of subtracting the group means, the issue is
that after de-meaning these variables are nothing but zeros.
2. A somewhat analogous issue arises with the random effects estimator. As mentioned above,
the default Swamy–Arora method relies on the group-means regression to obtain a measure
of the between variance. Suppose we have observations on n units or individuals and there
are k independent variables of interest. If k > n, this regression cannot be run — since we
have only n effective observations — and hence Swamy–Arora estimates cannot be obtained.
In this case, however, it is possible to use Nerlove’s method instead.
If both fixed effects and random effects are feasible for a given specification and dataset, the choice
between these estimators may be expressed in terms of the two econometric desiderata, efficiency
and consistency.
From a purely statistical viewpoint, we could say that there is a tradeoff between robustness and
efficiency. In the fixed effects approach, we do not make any hypotheses on the “group effects” (that
is, the time-invariant differences in mean between the groups) beyond the fact that they exist —
and that can be tested; see below. As a consequence, once these effects are swept out by taking
deviations from the group means, the remaining parameters can be estimated.
On the other hand, the random effects approach attempts to model the group effects as drawings
from a probability distribution instead of removing them. This requires that individual effects are
representable as a legitimate part of the disturbance term, that is, zero-mean random variables,
uncorrelated with the regressors.
As a consequence, the fixed-effects estimator “always works”, but at the cost of not being able to
estimate the effect of time-invariant regressors. The richer hypothesis set of the random-effects
estimator ensures that parameters for time-invariant regressors can be estimated, and that esti-
mation of the parameters for time-varying regressors is carried out more efficiently. These advan-
tages, though, are tied to the validity of the additional hypotheses. If, for example, there is reason
to think that individual effects may be correlated with some of the explanatory variables, then the
random-effects estimator would be inconsistent, while fixed-effects estimates would still be valid.
It is precisely on this principle that the Hausman test is built (see below): if the fixed- and random-
effects estimates agree, to within the usual statistical margin of error, there is no reason to think
the additional hypotheses invalid, and as a consequence, no reason not to use the more efficient RE
estimator.
Testing panel models

If you estimate a fixed effects or random effects model in the graphical interface, you may notice
that the number of items available under the “Tests” menu in the model window is relatively limited.
Panel models carry certain complications that make it difficult to implement all of the tests one
expects to see for models estimated on straight time-series or cross-sectional data.
Nonetheless, various panel-specific tests are printed along with the parameter estimates as a matter
of course, as follows.
When you estimate a model using fixed effects, you automatically get an F -test for the null hy-
pothesis that the cross-sectional units all have a common intercept. That is to say that all the αi s
are equal, in which case the pooled model (23.1), with a column of 1s included in the X matrix, is
adequate.
When you estimate using random effects, the Breusch–Pagan and Hausman tests are presented
automatically. To save their results in the context of a script one would copy the $model.bp_test
or $model.hausman_test bundles which are nested inside the $model bundle. Both of these inner
bundles contain the elements test, dfn (degrees of freedom), and pvalue.
The Breusch–Pagan test is the counterpart to the F -test mentioned above. The null hypothesis is
that the variance of vi in equation (23.3) equals zero; if this hypothesis is not rejected, then again
we conclude that the simple pooled model is adequate. If the panel is unbalanced the method from
Baltagi and Li (1990) is used to perform the Breusch–Pagan test for individual effects.
The Hausman test probes the consistency of the GLS estimates. The null hypothesis is that these
estimates are consistent—that is, that the requirement of orthogonality of the vi and the Xi is
satisfied. The test is based on a measure, H, of the “distance” between the fixed-effects and random-
effects estimates, constructed such that under the null it follows the χ 2 distribution with degrees
of freedom equal to the number of time-varying regressors in the matrix X. If the value of H is
“large” this suggests that the random effects estimator is not consistent and the fixed-effects model
is preferable.
There are two ways of calculating H, the matrix-difference method and the regression method. The
procedure for the matrix-difference method is this:
• Collect the fixed-effects estimates in a vector β̃ and the corresponding random-effects esti-
mates in β̂, then form the difference vector (β̃ − β̂).
• Form the covariance matrix of the difference vector as Var(β̃ − β̂) = Var(β̃) − Var(β̂) = Ψ ,
where Var(β̃) and Var(β̂) are estimated by the sample variance matrices of the fixed- and
random-effects models respectively.3
′
• Compute H = β̃ − β̂ Ψ −1 β̃ − β̂ .
Given the relative efficiencies of β̃ and β̂, the matrix Ψ “should be” positive definite, in which case
H is positive, but in finite samples this is not guaranteed and of course a negative χ 2 value is not
admissible. The regression method avoids this potential problem. The procedure is:
• Treat the random-effects model as the restricted model, and record its sum of squared resid-
uals as SSRr .
• Estimate via OLS an unrestricted model in which the dependent variable is quasi-demeaned y
and the regressors include both quasi-demeaned X (as in the RE model) and the de-meaned
variants of all the time-varying variables (i.e. the fixed-effects regressors); record the sum of
squared residuals from this model as SSRu .
3 Hausman (1978) showed that the covariance of the difference takes this simple form when β̂ is an efficient estimator
and β̃ is inefficient.
• Compute H = n (SSRr − SSRu ) /SSRu , where n is the total number of observations used. On
this variant H cannot be negative, since adding additional regressors to the RE model cannot
raise the SSR.
By default gretl computes the Hausman test via the regression method, but it uses the matrix-
difference method if you pass the option --matrix-diff to the panel command.
Serial correlation
A simple test for first-order autocorrelation of the error term, namely the Durbin–Watson (DW)
statistic, is printed as part of the output for pooled OLS as well as fixed-effects and random-effects
estimation. Let us define “serial correlation proper” as serial correlation strictly in the time di-
mension of a panel dataset. When based on the residuals from fixed-effects estimation, the DW
statistic is a test for serial correlation proper.4 The DW value shown in the case of random-effects
estimation is based on the fixed-effects residuals. When DW is based on pooled OLS residuals it
tests for serial correlation proper only on the assumption of a common intercept. Put differently,
in this case it tests a joint null hypothesis: absence of fixed effects plus absence of (first order)
serial correlation proper. In the presence of missing observations the DW statistic is calculated as
described in Baltagi and Wu (1999) (their expression for d1 under equation (16) on page 819).
When it is computed, the DW statistic can be retrieved via the accessor $dw after estimation. In
addition, an approximate P -value for the null of no serial correlation (ρ = 0) against the alternative
of ρ > 0 may be available via the accessor $dwpval. This is based on the analysis in Bhargava
et al. (1982); strictly speaking it is the marginal significance level of DW considered as a dL value
(the value below which the test rejects, as opposed to dU , the value above which the test fails to
reject). In the panel case, however, dL and dU are quite close, particularly when N (the number of
individual units) is large. At present gretl does not attempt to compute such P -values when the
number of observations differs across individuals.
Robust standard errors

For most estimators, gretl offers the option of computing an estimate of the covariance matrix that
is robust with respect to heteroskedasticity and/or autocorrelation (and hence also robust standard
errors). In the case of panel data, robust covariance matrix estimators are available for the pooled,
fixed effects and random effects models. See section 22.4 for details.
The constant in the fixed effects model

Users are sometimes puzzled by the constant or intercept reported by gretl on estimation of the
fixed effects model: how can a constant remain when the group means have been subtracted from
the data? The method of calculation of this term is a matter of convention, but the gretl authors
decided to follow the convention employed by Stata; this involves adding the global mean back
into the variables from which the group means have been removed.5 If you prefer to interpret the
fixed effects model as “OLS plus unit dummies throughout”, it can be proven the this approach is
equivalent to using centered unit dummies instead of plain 0/1 dummies.
The method that gretl uses internally is exemplified in Listing 23.1. The coefficients in the second
OLS estimation, including the intercept, agree with those in the initial fixed effects model, though
the standard errors differ due to a degrees of freedom correction in the fixed-effects covariance
matrix. (Note that the pmean function returns the group mean of a series.) The third estimator —
which produces quite a lot of output — instead uses the stdize function to create the centered
dummies. It thereby shows the equivalence of the internally-used method to “OLS plus centered
dummies”. (Note that in this case the standard errors agree with the initial estimates.)
4 The generalization of the Durbin–Watson statistic from the straight time-series context to panel data is due to
Bhargava et al. (1982).

5 See Gould (2013) for an extended explanation.
Listing 23.1: Calculating the intercept in the fixed effects model [Download ▼]
open abdata.gdt
list X = w k ys # list of explanatory variables
###
### built-in method
###
panel n const X --fixed-effects
###
### recentering "by hand"
###
depvar = n - pmean(n) + mean(n) # redefine the dependent variable
list indepvars = const

loop foreach i X
# redefine the explanatory variables
x_$i = $i - pmean($i) + mean($i)
indepvars += x_$i
endloop
ols depvar indepvars # perform estimation
###
### using centered dummies
###
list C = dummify(unit) # create the unit dummies

smpl n X --no-missing # adjust to perform centering correctly
list D = stdize(C, -1) # center the unit dummies
ols n const X D # perform estimation
R-squared in the fixed effects model

There is no uniquely “correct” way of calculating R 2 in the context of the fixed-effects model. It
may be argued that a measure of the squared correlation between the dependent variable and the
prediction yielded by the model is a desirable descriptive statistic to have, but which model and
which (variant of the) dependent variable are we talking about?
Fixed-effects models can be thought of in two equally defensible ways. From one perspective they
provide a nice, clean way of sweeping out individual effects by using the fact that in the linear
model a sufficient statistic is easy to compute. Alternatively, they provide a clever way to estimate
the “important” parameters of a model in which you want to include (for whatever reason) a full
set of individual dummies. If you take the second of these perspectives, your dependent variable is
unmodified y and your model includes the unit dummies; the appropriate R 2 measure is then the
squared correlation between y and the ŷ computed using both the measured individual effects and
the effects of the explicitly named regressors. This is reported by gretl as the “LSDV R-squared”. If
you take the first point of view, on the other hand, your dependent variable is really yit − ȳi and
your model just includes the β terms, the coefficients of deviations of the x variables from their
per-unit means. In this case, the relevant measure of R 2 is the so-called “within” R 2 ; this variant
is printed by gretl for fixed-effects model in place of the adjusted R 2 (it being unclear in this case
what exactly the “adjustment” should amount to anyway).
Residuals in the fixed and random effect models

After estimation of most kinds of models in gretl, you can retrieve a series containing the residuals
using the $uhat accessor. This is true of the fixed and random effects models, but the exact
meaning of gretl’s $uhat in these cases requires a little explanation.
Consider first the fixed effects model:
yit = Xit β + αi + εit
In this model gretl takes the “fitted value” ($yhat) to be α̂i + Xit β̂, and the residual ($uhat) to be
yit minus this fitted value. This makes sense because the fixed effects (the αi terms) are taken as
parameters to be estimated. However, it can be argued that the fixed effects are not really “explana-
tory” and if one defines the residual as the observed yit value minus its “explained” component
one might prefer to see just yit − Xit β̂. You can get this after fixed-effects estimation as follows:
series ue_fe = $uhat + $ahat - $coeff[1]
where $ahat gives the unit-specific intercept (as it would be calculated if one included all N unit
dummies and omitted a common y-intercept), and $coeff[1] gives the “global” y-intercept.6
Now consider the random-effects model:
yit = Xit β + vi + εit
In this case gretl considers the error term to be vi + εit (since vi is conceived as a random drawing)
and the $uhat series is an estimate of this, namely
yit − Xit β̂
What if you want an estimate of just vi (or just εit ) in this case? This poses a signal-extraction
problem: given the composite residual, how to recover an estimate of its components? The solution
is to ascribe to the individual effect, v̂i , a suitable fraction of the mean residual per individual,
¯ i = Ti ûit . The “suitable fraction” is the proportion of the variance of the variance of ūi that is
P
û t=1
due to vi , namely
σv2
= 1 − (1 − θi )2
σv + σε2 /Ti
2
6 For anyone used to Stata, gretl’s fixed-effects $uhat corresponds to what you get from Stata’s “predict, e” after
xtreg, while the second variant corresponds to Stata’s “predict, ue”.

After random effects estimation in gretl you can access a series containing the v̂i s under the name
$ahat. This series can be calculated by hand as follows:
# case 1: balanced panel

scalar theta = $["theta"]
series vhat = (1 - (1 - theta)^2) * pmean($uhat)
# case 2: unbalanced, Ti varies by individual

scalar s2v = $["s2v"]
scalar s2e = $["s2e"]
series frac = s2v / (s2v + s2e/pnobs($uhat))
series ahat = frac * pmean($uhat)
If an estimate of εit is wanted, it can then be obtained by subtraction from $uhat.
23.2 Autoregressive panel models

Special problems arise when a lag of the dependent variable is included among the regressors in a
panel model. Consider a dynamic variant of the pooled model (eq. 23.1):
yit = Xit β + ρyit−1 + uit (23.9)
First, if the error uit includes a group effect, vi , then yit−1 is bound to be correlated with the error,
since the value of vi affects yi at all t. That means that OLS applied to (23.9) will be inconsistent
as well as inefficient. The fixed-effects model sweeps out the group effects and so overcomes this
particular problem, but a subtler issue remains, which applies to both fixed and random effects
estimation. Consider the de-meaned representation of fixed effects, as applied to the dynamic
model,
ỹit = X̃it β + ρ ỹi,t−1 + εit
where ỹit = yit − ȳi and εit = uit − ūi (or uit − αi , using the notation of equation 23.2). The trouble
is that ỹi,t−1 will be correlated with εit via the group mean, ȳi . The disturbance εit influences yit
directly, which influences ȳi , which, by construction, affects the value of ỹit for all t. The same
issue arises in relation to the quasi-demeaning used for random effects. Estimators which ignore
this correlation will be consistent only as T → ∞ (in which case the marginal effect of εit on the
group mean of y tends to vanish).
One strategy for handling this problem, and producing consistent estimates of β and ρ, was pro-
posed by Anderson and Hsiao (1981). Instead of de-meaning the data, they suggest taking the first
difference of (23.9), an alternative tactic for sweeping out the group effects:
∆yit = ∆Xit β + ρ∆yi,t−1 + ηit (23.10)
where ηit = ∆uit = ∆(vi + εit ) = εit − εi,t−1 . We’re not in the clear yet, given the structure of the
error ηit : the disturbance εi,t−1 is an influence on both ηit and ∆yi,t−1 = yit − yi,t−1 . The next step
is then to find an instrument for the “contaminated” ∆yi,t−1 . Anderson and Hsiao suggest using
either yi,t−2 or ∆yi,t−2 , both of which will be uncorrelated with ηit provided that the underlying
errors, εit , are not themselves serially correlated.
The Anderson–Hsiao estimator is not provided as a built-in function in gretl, since gretl’s sensible
handling of lags and differences for panel data makes it a simple application of regression with
instrumental variables—see Listing 23.2, which is based on a study of country growth rates by
Nerlove (1999).7
Although the Anderson–Hsiao estimator is consistent, it is not most efficient: it does not make the
fullest use of the available instruments for ∆yi,t−1 , nor does it take into account the differenced
structure of the error ηit . It is improved upon by the methods of Arellano and Bond (1991) and
Blundell and Bond (1998). These methods are taken up in the next chapter.
7 Also see Clint Cummins’ benchmarks page, http://www.stanford.edu/~clint/bench/.
Listing 23.2: The Anderson–Hsiao estimator for a dynamic panel model [Download ▼]
# Penn World Table data as used by Nerlove

open penngrow.gdt
# Fixed effects (for comparison)
panel Y 0 Y(-1) X
# Random effects (for comparison)
panel Y 0 Y(-1) X --random-effects
# take differences of all variables
diff Y X
# Anderson-Hsiao, using Y(-2) as instrument
tsls d_Y d_Y(-1) d_X ; 0 d_X Y(-2)
# Anderson-Hsiao, using d_Y(-2) as instrument
tsls d_Y d_Y(-1) d_X ; 0 d_X d_Y(-2)
Chapter 24
Dynamic panel models
The command for estimating dynamic panel models in gretl is dpanel. This command supports
both the “difference” estimator (Arellano and Bond, 1991) and the “system” estimator (Blundell and
Bond, 1998), which has become the method of choice in the applied literature.
24.1 Introduction
Notation
A dynamic linear panel data model can be represented as follows (in notation based on Arellano
(2003)):
yit = αyi,t−1 + β′ xit + ηi + vit (24.1)
where i = 1, 2 . . . , N indexes the cross-section units and t indexes time.
The main idea behind the difference estimator is to sweep out the individual effect via differencing.
First-differencing eq. (24.1) yields
∆yit = α∆yi,t−1 + β′ ∆xit + ∆vit = γ ′ Wit + ∆vit , (24.2)
in obvious notation. The error term of (24.2) is, by construction, autocorrelated and also correlated
with the lagged dependent variable, so an estimator that takes both issues into account is needed.
The endogeneity issue is solved by noting that all values of yi,t−k with k > 1 can be used as
instruments for ∆yi,t−1 : unobserved values of yi,t−k (whether missing or pre-sample) can safely be
substituted with 0. In the language of GMM, this amounts to using the relation
E(∆vit · yi,t−k ) = 0, k>1 (24.3)
as an orthogonality condition.
Autocorrelation is dealt with by noting that if vit is white noise, the covariance matrix of the vector
whose typical element is ∆vit is proportional to a matrix H that has 2 on the main diagonal, −1
on the first subdiagonals and 0 elsewhere. One-step GMM estimation of equation (24.2) amounts to
computing
   −1    
X X X X
γ̂ =  W′i Zi  AN  Z′i Wi   W′i Zi  AN  Z′i ∆yi  (24.4)
i i i i
where
h i′
∆yi = ∆yi3 ··· ∆yiT
" #′
∆yi2 ··· ∆yi,T −1
Wi =
∆xi3 ··· ∆xiT
 
yi1 0 0 ··· 0 ∆xi3
0 yi1 yi2 ··· 0
 
 ∆xi4 
Zi = 
 
.. 

 . 

0 0 0 ··· yi,T −2 ∆xiT
214
Chapter 24. Dynamic panel models 215
and
 −1
X
AN =  Z′i HZi 
i
Once the 1-step estimator is computed, the sample covariance matrix of the estimated residuals
can be used instead of H to obtain 2-step estimates, which are not only consistent but asymp-
totically efficient. (In principle the process may be iterated, but nobody seems to be interested.)
Standard GMM theory applies, except for one point: Windmeijer (2005) has computed finite-sample
corrections to the asymptotic covariance matrix of the parameters, which are nowadays almost
universally used.
The difference estimator is consistent, but has been shown to have poor properties in finite samples
when α is near one. People these days prefer the so-called “system” estimator, which complements
the differenced data (with lagged levels used as instruments) with data in levels (using lagged dif-
ferences as instruments). The system estimator relies on an extra orthogonality condition which
has to do with the earliest value of the dependent variable yi,1 . The interested reader is referred
to Blundell and Bond (1998, pp. 124–125) for details, but here it suffices to say that this condi-
tion is satisfied in mean-stationary models and brings an improvement in efficiency that may be
substantial in many cases.
The set of orthogonality conditions exploited in the system approach is not very much larger than
with the difference estimator since most of the possible orthogonality conditions associated with
the equations in levels are redundant, given those already used for the equations in differences.
The key equations of the system estimator can be written as
   −1    
X X X X
γ̃ =  W̃′i Z̃i  AN  Z̃′i W̃i   W̃′i Z̃i  AN  Z̃′i ∆ỹi  (24.5)
i i i i
where
h i′
∆ỹi = ∆yi3 ··· ∆yiT yi3 ··· yiT
" #′
∆yi2 ··· ∆yi,T −1 yi2 ··· yi,T −1
W̃i =
∆xi3 ··· ∆xiT xi3 ··· xiT
 
yi1 0 0 ··· 0 0 ··· 0 ∆xi3
 

 0 yi1 yi2 ··· 0 0 ··· 0 ∆xi4 

 .. 
.
 
 
 

 0 0 0 ··· yi,T −2 0 ··· 0 ∆xiT 

Z̃i = 
 .. 


 . 

0 0 0 ··· 0 ··· 0 xi3 
 
 ∆yi2
..
 
 

 . 

0 0 0 ··· 0 0 ··· ∆yi,T −1 xiT
and
 −1
X
AN =  Z̃′i H ∗ Z̃i 
i
In this case choosing a precise form for the matrix H ∗ for the first step is no trivial matter. Its
north-west block should be as similar as possible to the covariance matrix of the vector ∆vit , so
the same choice as the “difference” estimator is appropriate. Ideally, the south-east block should
be proportional to the covariance matrix of the vector ι ηi + v, that is σv2 I + ση2 ι ι ′ ; but since ση2 is
unknown and any positive definite matrix renders the estimator consistent, people just use I. The
off-diagonal blocks should, in principle, contain the covariances between ∆vis and vit , which would
be an identity matrix if vit is white noise. However, since the south-east block is typically given a
conventional value anyway, the benefit in making this choice is not obvious. Some packages use I;
others use a zero matrix. Asymptotically, it should not matter, but on real datasets the difference
between the resulting estimates can be noticeable.
Rank deficiency
Both the difference estimator (24.4) and the system estimator (24.5) depend for their existence on
the invertibility of AN . This matrix may turn out to be singular for several reasons. However, this
does not mean that the estimator is not computable. In some cases, adjustments are possible such
that the estimator does exist, but the user should be aware that in such cases not all software
packages use the same strategy and replication of results may prove difficult or even impossible.
A first reason why AN may be singular is unavailability of instruments, chiefly because of missing
observations. This case is easy to handle. If a particular row of Z̃i is zero for all units, the corre-
sponding orthogonality condition (or the corresponding instrument if you prefer) is automatically
dropped; the overidentification rank is then adjusted for testing purposes.
Even if no instruments are zero, however, AN could be rank deficient. A trivial case occurs if there
are collinear instruments, but a less trivial case may arise when T (the total number of time periods
available) is not much smaller than N (the number of units), as, for example, in some macro datasets
where the units are countries. The total number of potentially usable orthogonality conditions is
O(T 2 ), which may well exceed N in some cases. Since AN is the sum of N matrices which have, at
most, rank 2T − 3 it could well happen that the sum is singular.
In all these cases, dpanel substitutes the pseudo-inverse of AN (Moore–Penrose) for its regular
inverse. Our choice is shared by some software packages, but not all, so replication may be hard.
Covariance matrix and standard errors

By default the standard errors shown for 1-step estimation are robust, based on the heteroskedasticity-
consistent variance estimator
   
X X
Var(γ̂)
d = M−1  W′i Zi  AN V̂N AN  Z′i Wi  M−1
i i
where M = ( i W′i Zi )AN ( i Z′i Wi ) and V̂N = N −1 ′ ′

P P P
i Zi ûi ûi Zi , with ûi the vector of residuals in
differences for individual i. In addition, as noted above, the variance estimator for 2-step estimation
employs the finite-sample correction of Windmeijer (2005).
When the --asymptotic option is passed to dpanel, however, the 1-step variance estimator is
simply σ̂u2 M −1 , which is not heteroskedasticity-consistent, and the Windmeijer correction is not
applied for 2-step estimation. Use of this option is not recommended unless you wish to replicate
prior results that did not report robust standard errors. In particular, tests based on the asymptotic
2-step variance estimator are known to over-reject quite substantially (standard errors too small).
Treatment of missing values

Textbooks seldom bother with missing values, but in some cases their treatment may be far from
obvious. This is especially true if missing values are interspersed between valid observations. For
example, consider the plain difference estimator with one lag, so
yt = αyt−1 + η + ϵt
where the i index is omitted for clarity. Suppose you have an individual with t = 1 . . . 5, for which
y3 is missing. It may seem that the data for this individual are unusable, because differencing yt
would produce something like
t 1 2 3 4 5
yt ∗ ∗ ◦ ∗ ∗
∆yt ◦ ∗ ◦ ◦ ∗
where ∗ = nonmissing and ◦ = missing. Estimation seems to be unfeasible, since there are no
periods in which ∆yt and ∆yt−1 are both observable.
However, we can use a k-difference operator and get
∆k yt = α∆k yt−1 + ∆k ϵt
where ∆k = 1 − Lk and past levels of yt are valid instruments. In this example, we can choose k = 3
and use y1 as an instrument, so this unit is in fact usable.
Not all software packages seem to be aware of this possibility, so replicating published results may
prove tricky if your dataset contains individuals with gaps between valid observations.
24.2 Usage
One feature of dpanel’s syntax is that you get default values for several choices you may wish to
make, so that in a “standard” situation the command is very concise. The simplest case of the
model (24.1) is a plain AR(1) process:
yi,t = αyi,t−1 + ηi + vit . (24.6)
If you give the command
dpanel 1 ; y
Gretl assumes that you want to estimate (24.6) via the difference estimator (24.4), using as many
orthogonality conditions as possible. The scalar 1 between dpanel and the semicolon indicates that
only one lag of y is included as an explanatory variable; using 2 would give an AR(2) model. The
syntax that gretl uses for the non-seasonal AR and MA lags in an ARMA model is also supported in
this context. For example, if you want the first and third lags of y (but not the second) included as
explanatory variables you can say
dpanel {1 3} ; y
or you can use a pre-defined matrix for this purpose:
matrix ylags = {1, 3}

dpanel ylags ; y
To use a single lag of y other than the first you need to employ this mechanism:
dpanel {3} ; y # only lag 3 is included

dpanel 3 ; y # compare: lags 1, 2 and 3 are used
To use the system estimator instead, you add the --system option, as in
dpanel 1 ; y --system
The level orthogonality conditions and the corresponding instrument are appended automatically
(see eq. 24.5).
Regressors
If additional regressors are to be included, they should be listed after the dependent variable in
the same way as other gretl estimation commands, such as ols. For the difference orthogonality
relations, dpanel takes care of transforming the regressors in parallel with the dependent variable.
One case of potential ambiguity is when an intercept is specified but the difference-only estimator
is selected, as in
dpanel 1 ; y const
In this case the default dpanel behavior, which agrees with David Roodman’s xtabond2 for Stata
(Roodman, 2009a), is to drop the constant (since differencing reduces it to nothing but zeros).
However, for compatibility with the DPD package for Ox, you can give the option --dpdstyle, in
which case the constant is retained (equivalent to including a linear trend in equation 24.1). A
similar point applies to the period-specific dummy variables which can be added in dpanel via the
--time-dummies option: in the differences-only case these dummies are entered in differenced
form by default, but when the --dpdstyle switch is applied they are entered in levels.
The standard gretl syntax applies if you want to use lagged explanatory variables, so for example
the command
dpanel 1 ; y const x(0 to -1) --system
would result in estimation of the model
yit = αyi,t−1 + β0 + β1 xit + β2 xi,t−1 + ηi + vit .
Instruments
The default rules for instruments are:
• lags of the dependent variable are instrumented using all available orthogonality conditions;
and
• additional regressors are considered exogenous, so they are used as their own instruments.
If a different policy is wanted, the instruments should be specified in an additional list, separated
from the regressors list by a semicolon. The syntax closely mirrors that of the tsls command,
but in this context it is necessary to distinguish between “regular” instruments and what are often
called “GMM-style” instruments (that is, instruments that are handled in the same block-diagonal
manner as lags of the dependent variable, as described above).
“Regular” instruments are transformed in the same way as regressors, and the contemporaneous
value of the transformed variable is used to form an orthogonality condition. Since regressors are
treated as exogenous by default, it follows that these two commands estimate the same model:
dpanel 1 ; y z
dpanel 1 ; y z ; z
The instrument specification in the second case simply confirms what is implicit in the first: that
z is exogenous. Note, though, that if you have some additional variable z2 which you want to add
as a regular instrument, it then becomes necessary to include z in the instrument list if it is to be
treated as exogenous:
dpanel 1 ; y z ; z2 # z is now implicitly endogenous

dpanel 1 ; y z ; z z2 # z is treated as exogenous
The specification of “GMM-style” instruments is handled by the special constructs GMM() and
GMMlevel(). The first of these relates to instruments for the equations in differences, and the
second to the equations in levels. The syntax for GMM() is
GMM(name, minlag, maxlag[,collapse])
where name is replaced by the name of a series (or the name of a list of series), and minlag and
maxlag are replaced by the minimum and maximum lags to be used as instruments. The same goes
for GMMlevel().
One common use of GMM() is to limit the number of lagged levels of the dependent variable used as
instruments for the equations in differences. It’s well known that although exploiting all possible
orthogonality conditions yields maximal asymptotic efficiency, in finite samples it may be prefer-
able to use a smaller subset—see Roodman (2009b), Okui (2009). For example, the specification
dpanel 1 ; y ; GMM(y, 2, 4)
ensures that no lags of yt earlier than t − 4 will be used as instruments.

A second means of limiting the number of instruments is to “collapse” the sets of block-diagonal
instruments shown following equations 24.4 and 24.5. Instead of having a distinct instrument per
observation per lag, this is reduced to a distinct instrument per lag, as shown in Figure 24.1.
GMM()
   
yi1 0 0 0 0 0 ··· yi1 0 0 ···
0 yi1 yi2 0 0 0 ···   yi1 yi2 0 ··· 
   

=⇒
   

 0 0 0 yi1 yi2 yi3 ···    y
 i1 yi2 yi3 ···  
.. .. .. .. .. .. .. .. .. .. ..
   
. . . . . . . . . . .
GMMlevel()
   
∆yi2 0 0 ··· ∆yi2
0 0 ··· 
   
 ∆yi3  ∆yi3 
=⇒
   

 0 0 ∆yi4 ···    ∆y
 i4


.. .. .. .. ..
   
. . . . .
Figure 24.1: Collapsing block-diagonal instruments
This treatment of instruments can be selected per GMM or GMMlevel case — by appending the
collapse flag following the maxlag value — or it can be set “globally” by use of the --collapse
option to the dpanel command. To our knowledge Roodman’s xtabond2 was the first software to
offer this useful facility.
A further use of GMM() is to exploit more fully the potential orthogonality conditions afforded by
an exogenous regressor, or a related variable that does not appear as a regressor. For example, in
dpanel 1 ; y x ; GMM(z, 2, 6)
the variable x is considered an endogenous regressor, and up to 5 lags of z are used as instruments.
Note that in the following script fragment
dpanel 1 ; y z
dpanel 1 ; y z ; GMM(z,0,0)
the two estimation commands should not be expected to give the same result, as the sets of orthog-
onality relationships are subtly different. In the latter case, you have T − 2 separate orthogonality
relationships pertaining to zit , none of which has any implication for the other ones; in the former
case, you only have one. In terms of the Zi matrix, the first form adds a single row to the bottom of
the instruments matrix, while the second form adds a diagonal block with T − 2 columns; that is,
h i
zi3 zi4 · · · zit
versus  
zi3 0 ··· 0
 0 zi4 ··· 0 
 
 
 .. .. 

 . . 

0 0 ··· zit
24.3 Replication of DPD results

In this section we show how to replicate the results of some of the pioneering work with dynamic
panel-data estimators by Arellano, Bond and Blundell. As the DPD manual (Doornik, Arellano and
Bond, 2006) explains, it is difficult to replicate the original published results exactly, for two main
reasons: not all of the data used in those studies are publicly available; and some of the choices
made in the original software implementation of the estimators have been superseded. Here, there-
fore, our focus is on replicating the results obtained using the current DPD package and reported
in the DPD manual.
The examples are based on the program files abest1.ox, abest3.ox and bbest1.ox. These
are included in the DPD package, along with the Arellano–Bond database files abdata.bn7 and
abdata.in7.1 The Arellano–Bond data are also provided with gretl, in the file abdata.gdt. In the
following we do not show the output from DPD or gretl; it is somewhat voluminous, and is easily
generated by the user. As of this writing the results from Ox/DPD and gretl are identical in all
relevant respects for all of the examples shown.2
A complete Ox/DPD program to generate the results of interest takes this general form:
#include <oxstd.h>
#import <packages/dpd/dpd>
main()
{
decl dpd = new DPD();
dpd.Load("abdata.in7");
dpd.SetYear("YEAR");
// model-specific code here
delete dpd;
}
In the examples below we take this template for granted and show just the model-specific code.
Example 1
The following Ox/DPD code—drawn from abest1.ox— replicates column (b) of Table 4 in Arellano
and Bond (1991), an instance of the differences-only or GMM-DIF estimator. The dependent variable
1 Seehttp://www.doornik.com/download.html.
2 Tobe specific, this is using Ox Console version 5.10, version 1.24 of the DPD package, and gretl built from CVS as of
2010-10-23, all on Linux.
is the log of employment, n; the regressors include two lags of the dependent variable, current and
lagged values of the log real-product wage, w, the current value of the log of gross capital, k, and
current and lagged values of the log of industry output, ys. In addition the specification includes
a constant and five year dummies; unlike the stochastic regressors, these deterministic terms are
not differenced. In this specification the regressors w, k and ys are treated as exogenous and serve
as their own instruments. In DPD syntax this requires entering these variables twice, on the X_VAR
and I_VAR lines. The GMM-type (block-diagonal) instruments in this example are the second and
subsequent lags of the level of n. Both 1-step and 2-step estimates are computed.
dpd.SetOptions(FALSE); // don’t use robust standard errors

dpd.Select(Y_VAR, {"n", 0, 2});
dpd.Select(X_VAR, {"w", 0, 1, "k", 0, 0, "ys", 0, 1});
dpd.Select(I_VAR, {"w", 0, 1, "k", 0, 0, "ys", 0, 1});
dpd.Gmm("n", 2, 99);
dpd.SetDummies(D_CONSTANT + D_TIME);
print("\n\n***** Arellano & Bond (1991), Table 4 (b)");

dpd.SetMethod(M_1STEP);
dpd.Estimate();
dpd.Estimate();
Here is gretl code to do the same job:
open abdata.gdt
list X = w w(-1) k ys ys(-1)
dpanel 2 ; n X const --time-dummies --asy --dpdstyle
dpanel 2 ; n X const --time-dummies --asy --two-step --dpdstyle
Note that in gretl the switch to suppress robust standard errors is --asymptotic, here abbreviated
to --asy.3 The --dpdstyle flag specifies that the constant and dummies should not be differenced,
in the context of a GMM-DIF model. With gretl’s dpanel command it is not necessary to specify the
exogenous regressors as their own instruments since this is the default; similarly, the use of the
second and all longer lags of the dependent variable as GMM-type instruments is the default and
need not be stated explicitly.
Example 2
The DPD file abest3.ox contains a variant of the above that differs with regard to the choice of
instruments: the variables w and k are now treated as predetermined, and are instrumented GMM-
style using the second and third lags of their levels. This approximates column (c) of Table 4 in
Arellano and Bond (1991). We have modified the code in abest3.ox slightly to allow the use of
robust (Windmeijer-corrected) standard errors, which are the default in both DPD and gretl with
2-step estimation:

dpd.Select(I_VAR, {"ys", 0, 1});
dpd.Gmm("n", 2, 99);
dpd.Gmm("w", 2, 3);
dpd.Gmm("k", 2, 3);
3 Option flags in gretl can always be truncated, down to the minimal unique abbreviation.
print("\n***** Arellano & Bond (1991), Table 4 (c)\n");

print(" (but using different instruments!!)\n");
dpd.Estimate();
The gretl code is as follows:
open abdata.gdt
list X = w w(-1) k ys ys(-1)
list Ivars = ys ys(-1)
dpanel 2 ; n X const ; GMM(w,2,3) GMM(k,2,3) Ivars --time --two-step --dpd
Note that since we are now calling for an instrument set other then the default (following the second
semicolon), it is necessary to include the Ivars specification for the variable ys. However, it is
not necessary to specify GMM(n,2,99) since this remains the default treatment of the dependent
variable.
Example 3
Our third example replicates the DPD output from bbest1.ox: this uses the same dataset as the
previous examples but the model specifications are based on Blundell and Bond (1998), and involve
comparison of the GMM-DIF and GMM-SYS (“system”) estimators. The basic specification is slightly
simplified in that the variable ys is not used and only one lag of the dependent variable appears as
a regressor. The Ox/DPD code is:

dpd.Select(X_VAR, {"w", 0, 1, "k", 0, 1});
print("\n\n***** Blundell & Bond (1998), Table 4: 1976-86 GMM-DIF");

dpd.Gmm("n", 2, 99);
dpd.Gmm("w", 2, 99);
dpd.Gmm("k", 2, 99);
dpd.Estimate();
print("\n\n***** Blundell & Bond (1998), Table 4: 1976-86 GMM-SYS");

dpd.GmmLevel("n", 1, 1);
dpd.GmmLevel("w", 1, 1);
dpd.GmmLevel("k", 1, 1);
dpd.Estimate();
Here is the corresponding gretl code:
open abdata.gdt
list X = w w(-1) k k(-1)
list Z = w k
# Blundell & Bond (1998), Table 4: 1976-86 GMM-DIF

dpanel 1 ; n X const ; GMM(Z,2,99) --time --two-step --dpd
# Blundell & Bond (1998), Table 4: 1976-86 GMM-SYS

dpanel 1 ; n X const ; GMM(Z,2,99) GMMlevel(Z,1,1) \
--time --two-step --dpd --system
Note the use of the --system option flag to specify GMM-SYS, including the default treatment of
the dependent variable, which corresponds to GMMlevel(n,1,1). In this case we also want to
use lagged differences of the regressors w and k as instruments for the levels equations so we
need explicit GMMlevel entries for those variables. If you want something other than the default
treatment for the dependent variable as an instrument for the levels equations, you should give an
explicit GMMlevel specification for that variable — and in that case the --system flag is redundant
(but harmless).
For the sake of completeness, note that if you specify at least one GMMlevel term, dpanel will then
include equations in levels, but it will not automatically add a default GMMlevel specification for
the dependent variable unless the --system option is given.
24.4 Cross-country growth example

The previous examples all used the Arellano–Bond dataset; for this example we use the dataset
CEL.gdt, which is also included in the gretl distribution. As with the Arellano–Bond data, there
are numerous missing values. Details of the provenance of the data can be found by opening the
dataset information window in the gretl GUI (Data menu, Dataset info item). This is a subset of the
Barro–Lee 138-country panel dataset, an approximation to which is used in Caselli, Esquivel and
Lefort (1996) and Bond, Hoeffler and Temple (2001).4 Both of these papers explore the dynamic
panel-data approach in relation to the issues of growth and convergence of per capita income across
countries.
The dependent variable is growth in real GDP per capita over successive five-year periods; the
regressors are the log of the initial (five years prior) value of GDP per capita, the log-ratio of in-
vestment to GDP, s, in the prior five years, and the log of annual average population growth, n,
over the prior five years plus 0.05 as stand-in for the rate of technical progress, g, plus the rate of
depreciation, δ (with the last two terms assumed to be constant across both countries and periods).
The original model is
∆5 yit = βyi,t−5 + αsit + γ(nit + g + δ) + νt + ηi + ϵit (24.7)
which allows for a time-specific disturbance νt . The Solow model with Cobb–Douglas production
function implies that γ = −α, but this assumption is not imposed in estimation. The time-specific
disturbance is eliminated by subtracting the period mean from each of the series.
Equation (24.7) can be transformed to an AR(1) dynamic panel-data model by adding yi,t−5 to both
sides, which gives
yit = (1 + β)yi,t−5 + αsit + γ(nit + g + δ) + ηi + ϵit (24.8)
where all variables are now assumed to be time-demeaned.
In (rough) replication of Bond et al. (2001) we now proceed to estimate the following two models:
(a) equation (24.8) via GMM-DIF, using as instruments the second and all longer lags of yit , sit and
nit + g + δ; and (b) equation (24.8) via GMM-SYS, using ∆yi,t−1 , ∆si,t−1 and ∆(ni,t−1 + g + δ) as
additional instruments in the levels equations. We report robust standard errors throughout. (As a
purely notational matter, we now use “t − 1” to refer to values five years prior to t, as in Bond et al.
(2001)).
The gretl script to do this job is shown in Listing 24.1. Note that the final transformed versions of
the variables (logs, with time-means subtracted) are named ly (yit ), linv (sit ) and lngd (nit +g +δ).
For comparison we estimated the same two models using Ox/DPD and xtabond2. (In each case
we constructed a comma-separated values dataset containing the data as transformed in the gretl
script shown above, using a missing-value code appropriate to the target program.) For reference,
the commands used with Stata are reproduced below:
4 We say an “approximation” because we have not been able to replicate exactly the OLS results reported in the papers
cited, though it seems from the description of the data in Caselli et al. (1996) that we ought to be able to do so. We note
that Bond et al. (2001) used data provided by Professor Caselli yet did not manage to reproduce the latter’s results.
Listing 24.1: GDP growth example [Download ▼]
open CEL.gdt
ngd = n + 0.05
ly = log(y)
linv = log(s)
lngd = log(ngd)
# take out time means

loop i=1..8
smpl (time == i) --restrict --replace
ly -= mean(ly)
linv -= mean(linv)
lngd -= mean(lngd)
endloop
smpl --full
list X = linv lngd
# 1-step GMM-DIF
dpanel 1 ; ly X ; GMM(X,2,99)
# 2-step GMM-DIF
dpanel 1 ; ly X ; GMM(X,2,99) --two-step
# GMM-SYS
dpanel 1 ; ly X ; GMM(X,2,99) GMMlevel(X,1,1) --two-step --sys
#delimit ;
insheet using CEL.csv
tsset unit time;
xtabond2 ly L.ly linv lngd, gmm(L.ly, lag(1 99)) gmm(linv, lag(2 99))
gmm(lngd, lag(2 99)) rob nolev;
gmm(lngd, lag(2 99)) rob nolev twostep;
gmm(lngd, lag(2 99)) rob nocons twostep;
For the GMM-DIF model all three programs find 382 usable observations and 30 instruments, and
yield identical parameter estimates and robust standard errors (up to the number of digits printed,
or more); see Table 24.1.5
1-step 2-step
coeff std. error coeff std. error
ly(-1) 0.577564 0.1292 0.610056 0.1562
linv 0.0565469 0.07082 0.100952 0.07772
lngd −0.143950 0.2753 −0.310041 0.2980
Table 24.1: GMM-DIF: Barro–Lee data
Results for GMM-SYS estimation are shown in Table 24.2. In this case we show two sets of gretl
5 The coefficient shown for ly(-1) in the Tables is that reported directly by the software; for comparability with the
original model (eq. 24.7) it is necesary to subtract 1, which produces the expected negative value indicating conditional
convergence in per capita income.
results: those labeled “gretl(1)” were obtained using gretl’s --dpdstyle option, while those labeled
“gretl(2)” did not use that option—the intent being to reproduce the H matrices used by Ox/DPD
and xtabond2 respectively.
gretl(1) Ox/DPD gretl(2) xtabond2

ly(-1) 0.9237 (0.0385) 0.9167 (0.0373) 0.9073 (0.0370) 0.9073 (0.0370)
linv 0.1592 (0.0449) 0.1636 (0.0441) 0.1856 (0.0411) 0.1856 (0.0411)
lngd −0.2370 (0.1485) −0.2178 (0.1433) −0.2355 (0.1501) −0.2355 (0.1501)
Table 24.2: 2-step GMM-SYS: Barro–Lee data (standard errors in parentheses)
In this case all three programs use 479 observations; gretl and xtabond2 use 41 instruments and
produce the same estimates (when using the same H matrix) while Ox/DPD nominally uses 66.6
It is noteworthy that with GMM-SYS plus “messy” missing observations, the results depend on the
precise array of instruments used, which in turn depends on the details of the implementation of
the estimator.
24.5 Auxiliary test statistics

We have concentrated above on parameter estimates and standard errors. Here we add some dis-
cussion of the additional test statistics that typically accompany both GMM-DIF and GMM-SYS
estimation —tests of overidentification, for first- and second-order autocorrelation, and for the
joint significance of regressors.
Overidentification
If a model estimated with the use of instrumental variables is just-identified, the condition of or-
thogonality of the residuals and the instruments can be satisfied exactly. But if the specification
is overidentified (more instruments than endogenous regressors) this condition can only be ap-
proximated, and the degree to which orthogonality “fails” serves as a test for the validity of the
instruments (and/or the specification). Since dynamic panel models are almost always overidenti-
fied such a test is of particular importance.
There are two such tests in the econometric literature, devised respectively by Sargan (1958) and
Hansen (1982). They share a common principle: a suitably scaled measure of deviation from perfect
orthogonality can be shown to be distributed as χ 2 (k), with k the degree of overidentification,
under the null hypothesis of valid instruments and correct specification. Both test statistics can be
written as    
N
X N
X
∗′ ′ ∗
S= v̂ Zi  AN i Z v̂  i i
i=1 i=1
where the v̂∗i are the residuals in first differences for unit i, and for that reason they are often
rolled together—for example, as “Hansen–Sargan” tests by Davidson and MacKinnon (2004).
The Sargan vs Hansen difference is buried in AN : Sargan’s original test is the minimized orthogonal-
ity score divided by a scalar estimate of the error variance (which is presumed to be homoskedastic),
while Hansen’s is the minimized criterion from efficient GMM estimation, in which the scalar vari-
ance estimate is replaced by a heteroskedasticity- and autocorrelation-consistent (HAC) estimator
of the variance matrix of the error term. These variants correspond to 1-step and 2-step estimates
of the given specification.
Up till version 2021d, gretl followed Ox/DPD in presenting a single overidentification statistic under
the name “Sargan”—in effect, a Sargan test proper for the 1-step estimator and a Hansen test
6 This is a case of the issue described in section 24.1: the full A matrix turns out to be singular and special measures
N
must be taken to produce estimates.
for 2-step. Subsequently, however, gretl follows xtabond2 in distinguishing between the tests
and presenting both statistics, under their original names, when 2-step estimation is selected (and
therefore the HAC variance estimator is available). This choice responds to an argument made by
Roodman (2009b): the Sargan test is questionable owing to its assumption of homoskedasticity but
the Hansen test is seriously weakened by an excessive number of instruments (it may under-reject
substantially), so there may be a benefit to taking both tests into consideration.
There are cases where the degrees of freedom for the overidentification test differs between DPD
and gretl; this occurs when the AN matrix is singular (section 24.1). In concept the df equals the
number of instruments minus the number of parameters estimated; for the first of these terms
gretl uses the rank of AN , while DPD appears to use the full dimension of this matrix.
Autocorrelation
Negative first-order autocorrelation of the residuals in differences is expected by construction of
the dynamic panel estimator, so a significant value for the AR(1) test does not indicate a problem.
If the AR(2) test rejects, however, this indicates violation of the maintained assumptions. Note that
valid AR tests cannot be produced when the --asymptotic option is specified in conjunction with
one-step GMM-SYS estimation; if you need the tests, either add the two-step option or drop the
asymptotic flag (which is recommended in any case).
Wald tests on regressors

Wald tests on the regressors (and separately on the time dummy variables, if included), are based
on the estimated variance matrix of the parameter estimates and are generally in agreement across
software packages provided the parameter variance is estimated in the same way. One small ex-
ception pertains to comparison between Ox/DPD and gretl when the difference estimator is used, a
constant term is included, and the --dpdstyle option is given with dpanel (so the constant is not
automatically omitted). In this case DPD includes the constant in the time-dummies Wald test but
gretl does not.
24.6 Post-estimation available statistics

After estimation, the $model accessor will return a bundle containing several items that may be of
interest: most should be self-explanatory, but here’s a partial list:
Key Content
AR1, AR2 1st and 2nd order autocorrelation test statistics
sargan, sargan_df Sargan test for overidentifying restrictions and correspond-
ing degrees of freedom
hansen, hansen_df Hansen test for overidentifying restrictions and corre-
sponding degrees of freedom
wald, wald_df Wald test for overall significance and corresponding de-
grees of freedom
GMMinst The matrix Z of instruments (see equations (24.2) and (24.5)
wgtmat The matrix A of GMM weights (see equations (24.2) and
(24.5)
Note that hansen and hansen_df are not included when 1-step estimation is selected. Note also
that GMMinst and wgtmat (which may be quite large matrices) are not saved in the $model bundle
by default; that requires use of the --keep-extra option with the dpanel command. Listing 24.2
illustrates use of these matrices to replicate via hansl commands the calculation of the GMM esti-
mator.
Listing 24.2: replication of built-in command via hansl commands [Download ▼]
set verbose off

open abdata.gdt
# compose list of regressors

list X = w w(-1) k k(-1)
list Z = w k
dpanel 1 ; n X const ; GMM(Z,2,99) --two-step --dpd --keep-extra
### --- re-do by hand ----------------------------
# fetch Z and A from model

A = $model.wgtmat
mZt = $model.GMMinst # note: transposed
# create data matrices

series valid = ok($uhat)
series ddep = diff(n)
series dldep = ddep(-1)
list dreg = diff(X)
smpl valid --dummy
matrix m_reg = {dldep} ~ {dreg} ~ 1

matrix m_dep = {ddep}
matrix uno = mZt * m_reg

matrix due = qform(uno’, A)
matrix tre = (uno’A) * (mZt * m_dep)
matrix coef = due\tre
print coef
24.7 Memo: dpanel options

flag effect
--asymptotic Suppresses the use of robust standard errors

--two-step Calls for 2-step estimation (the default being 1-step)
--system Calls for GMM-SYS, with default treatment of the dependent variable,
as in GMMlevel(y,1,1)
--collapse Collapse block-diagonal sets of GMM instruments as per Roodman
(2009a)
--time-dummies Includes period-specific dummy variables
--dpdstyle Compute the H matrix as in DPD; also suppresses differencing of
automatic time dummies and omission of intercept in the GMM-DIF
case
--verbose Prints confirmation of the GMM-style instruments used; and when
--two-step is selected, prints the 1-step estimates first
--vcv Calls for printing of the covariance matrix
--quiet Suppresses the printing of results
--keep-extra Save additional matrices in $model bundle (see above)
The time dummies option supports the qualifier noprint, as in
--time-dummies=noprint
This means that although the dummies are included in the specification their coefficients, standard
errors and so on are not printed.
Chapter 25
Nonlinear least squares
25.1 Introduction and examples

Gretl supports nonlinear least squares (NLS) using a variant of the Levenberg–Marquardt algorithm.
The user must supply a specification of the regression function; prior to giving this specification the
parameters to be estimated must be “declared” and given initial values. Optionally, the user may
supply analytical derivatives of the regression function with respect to each of the parameters.
If derivatives are not given, the user must instead give a list of the parameters to be estimated
(separated by spaces or commas), preceded by the keyword params. The tolerance (criterion for
terminating the iterative estimation procedure) can be adjusted using the set command.
The syntax for specifying the function to be estimated consists of the name of the dependent
variable, followed by an expression to generate it. This is illustrated in the following two examples,
with accompanying derivatives.
# Consumption function from Greene

nls C = alpha + beta * Y^gamma
deriv alpha = 1
deriv beta = Y^gamma
deriv gamma = beta * Y^gamma * log(Y)
end nls
# Nonlinear function from Russell Davidson

nls y = alpha + beta * x1 + (1/beta) * x2
deriv alpha = 1
deriv beta = x1 - x2/(beta*beta)
end nls --vcv
Note the command words nls (which introduces the regression function), deriv (which introduces
the specification of a derivative), and end nls, which terminates the specification and calls for
estimation. If the --vcv flag is appended to the last line the covariance matrix of the parameter
estimates is printed.
25.2 Initializing the parameters

The parameters of the regression function must be given initial values prior to the nls command.
(In the GUI program this may be done via the menu item “Variable, Define new variable”).
In some cases, where the nonlinear function is a generalization of (or a restricted form of) a linear
model, it may be convenient to run an ols and initialize the parameters from the OLS coefficient
estimates. In relation to the first example above, one might do:
ols C 0 Y
alpha = $coeff(0)
beta = $coeff(Y)
gamma = 1
And in relation to the second example one might do:
229
Chapter 25. Nonlinear least squares 230
ols y 0 x1 x2
alpha = $coeff(0)
beta = $coeff(x1)
25.3 NLS dialog window

It is probably most convenient to compose the commands for NLS estimation in the form of a
gretl script but you can also do so interactively, by selecting the item “Nonlinear Least Squares”
under the “Model, Nonlinear models” menu. This opens a dialog box where you can type the
function specification (possibly prefaced by statements to set the initial parameter values) and the
derivatives, if available. An example of this is shown in Figure 25.1. Note that in this context you
do not have to supply the nls and end nls tags.
Figure 25.1: NLS dialog box
25.4 Analytical and numerical derivatives

If you are able to figure out the derivatives of the regression function with respect to the param-
eters, it is advisable to supply those derivatives as shown in the examples above. If that is not
possible, gretl will compute approximate numerical derivatives. However, the properties of the NLS
algorithm may not be so good in this case (see section 25.8).
This is done by using the params statement, which should be followed by a list of identifiers
containing the parameters to be estimated. In this case, the examples above would read as follows:
# Greene
nls C = alpha + beta * Y^gamma
params alpha beta gamma
end nls
# Davidson
nls y = alpha + beta * x1 + (1/beta) * x2
params alpha beta
end nls
If analytical derivatives are supplied, they are checked for consistency with the given nonlinear
function. If the derivatives are clearly incorrect estimation is aborted with an error message. If the
derivatives are “suspicious” a warning message is issued but estimation proceeds. This warning
may sometimes be triggered by incorrect derivatives, but it may also be triggered by a high degree
of collinearity among the derivatives.
Note that you cannot mix analytical and numerical derivatives: you should supply expressions for
all of the derivatives or none.
25.5 Advanced use

The nls block can also contain more sophisticated constructs. First, it can handle intermediate
expressions; this makes it possible to construct the conditional mean expression as a multi-step
job, thus enhancing modularity and readability of the code. Second, more complex objects, such as
lists and matrices, can be used for this purpose.
For example, suppose that we want to estimate a Probit Binary Response model via NLS. The speci-
fication is
x i ) = b0 + b1 x1,i + b2 x2,i = b ′ x i

yi = Φ g(xx i ) + ui , g(x (25.1)
Note: this is not the recommended way to estimate a probit model: the ui term is heteroskedastic
by construction and ML estimation is much preferable here. Still, NLS is a consistent estimator of
the parameter vector b , although its covariance matrix will have to be adjusted to compensate for
heteroskedasticity: this is accomplished via the --robust switch.
Listing 25.1: NLS estimation of a Probit model [Download ▼]
open greene25_1.gdt
list X = const age income ownrent selfempl
# initalisation
ols cardhldr X --quiet
matrix b = $coeff / $sigma
# proceed with NLS estimation

nls cardhldr = cnorm(ndx)
series ndx = lincomb(X, b)
params b
end nls --robust
# compare with ML probit

probit cardhldr X --p-values
The example in script 25.1 can be enhanced by using analytical derivatives: since
xi)
∂g(x
b ′ x i ) · xij
= ϕ(b
∂bj
one could substitute the params line in the script with the two-liner
series f = dnorm(ndx)
deriv b = {f} .* {X}
and have nls use analytically-computed derivatives, which are quicker and usually more reliable.
25.6 Controlling termination

The NLS estimation procedure is an iterative process. Iteration is terminated when the criterion for
convergence is met or when the maximum number of iterations is reached, whichever comes first.
Let k denote the number of parameters being estimated. The maximum number of iterations is
100 × (k + 1) when analytical derivatives are given, and 200 × (k + 1) when numerical derivatives
are used.
Let ϵ denote a small number. The iteration is deemed to have converged if at least one of the
following conditions is satisfied:
• Both the actual and predicted relative reductions in the error sum of squares are at most ϵ.
• The relative error between two consecutive iterates is at most ϵ.
This default value of ϵ is the machine precision to the power 3/4,1 but it can be adjusted using the
set command with the parameter nls_toler. For example
set nls_toler .0001
will relax the value of ϵ to 0.0001.
25.7 Details on the code

The underlying engine for NLS estimation is based on the minpack suite of functions, available
from netlib.org. Specifically, the following minpack functions are called:
lmder Levenberg–Marquardt algorithm with analytical derivatives

chkder Check the supplied analytical derivatives
lmdif Levenberg–Marquardt algorithm with numerical derivatives
fdjac2 Compute final approximate Jacobian when using numerical derivatives
dpmpar Determine the machine precision
On successful completion of the Levenberg–Marquardt iteration, a Gauss–Newton regression is used

to calculate the covariance matrix for the parameter estimates. If the --robust flag is given a
robust variant is computed. The documentation for the set command explains the specific options
available in this regard.
Since NLS results are asymptotic, there is room for debate over whether or not a correction for
degrees of freedom should be applied when calculating the standard error of the regression (and
the standard errors of the parameter estimates). For comparability with OLS, and in light of the
reasoning given in Davidson and MacKinnon (1993), the estimates shown in gretl do use a degrees
of freedom correction.
25.8 Numerical accuracy

Table 25.1 shows the results of running the gretl NLS procedure on the 27 Statistical Reference
Datasets made available by the U.S. National Institute of Standards and Technology (NIST) for test-
ing nonlinear regression software.2 For each dataset, two sets of starting values for the parameters
are given in the test files, so the full test comprises 54 runs. Two full tests were performed, one
1 On a 32-bit Intel Pentium machine a likely value for this parameter is 1.82 × 10−12 .
2 For a discussion of gretl’s accuracy in the estimation of linear models, see Appendix C.
using all analytical derivatives and one using all numerical approximations. In each case the default
tolerance was used.3
Out of the 54 runs, gretl failed to produce a solution in 4 cases when using analytical derivatives,
and in 5 cases when using numeric approximation. Of the four failures in analytical derivatives
mode, two were due to non-convergence of the Levenberg–Marquardt algorithm after the maximum
number of iterations (on MGH09 and Bennett5, both described by NIST as of “Higher difficulty”) and
two were due to generation of range errors (out-of-bounds floating point values) when computing
the Jacobian (on BoxBOD and MGH17, described as of “Higher difficulty” and “Average difficulty”
respectively). The additional failure in numerical approximation mode was on MGH10 (“Higher diffi-
culty”, maximum number of iterations reached).
The table gives information on several aspects of the tests: the number of outright failures, the
average number of iterations taken to produce a solution and two sorts of measure of the accuracy
of the estimates for both the parameters and the standard errors of the parameters.
For each of the 54 runs in each mode, if the run produced a solution the parameter estimates
obtained by gretl were compared with the NIST certified values. We define the “minimum correct
figures” for a given run as the number of significant figures to which the least accurate gretl esti-
mate agreed with the certified value, for that run. The table shows both the average and the worst
case value of this variable across all the runs that produced a solution. The same information is
shown for the estimated standard errors.4
The second measure of accuracy shown is the percentage of cases, taking into account all parame-
ters from all successful runs, in which the gretl estimate agreed with the certified value to at least
the 6 significant figures which are printed by default in the gretl regression output.
Table 25.1: Nonlinear regression: the NIST tests
Analytical derivatives Numerical derivatives

Failures in 54 tests 4 5
Average iterations 32 127
Mean of min. correct figures, 8.120 6.980
parameters
Worst of min. correct figures, 4 3
parameters
Mean of min. correct figures, 8.000 5.673
standard errors
Worst of min. correct figures, 5 2
standard errors
Percent correct to at least 6 figures, 96.5 91.9
parameters
Percent correct to at least 6 figures, 97.7 77.3
standard errors
Using analytical derivatives, the worst case values for both parameters and standard errors were
improved to 6 correct figures on the test machine when the tolerance was tightened to 1.0e−14.
3 The data shown in the table were gathered from a pre-release build of gretl version 1.0.9, compiled with gcc 3.3,
linked against glibc 2.3.2, and run under Linux on an i686 PC (IBM ThinkPad A21m).
4 For the standard errors, I excluded one outlier from the statistics shown in the table, namely Lanczos1. This is an
odd case, using generated data with an almost-exact fit: the standard errors are 9 or 10 orders of magnitude smaller
than the coefficients. In this instance gretl could reproduce the certified standard errors to only 3 figures (analytical
derivatives) and 2 figures (numerical derivatives).
Using numerical derivatives, the same tightening of the tolerance raised the worst values to 5
correct figures for the parameters and 3 figures for standard errors, at a cost of one additional
failure of convergence.
Note the overall superiority of analytical derivatives: on average solutions to the test problems
were obtained with substantially fewer iterations and the results were more accurate (most notably
for the estimated standard errors). Note also that the six-digit results printed by gretl are not 100
percent reliable for difficult nonlinear problems (in particular when using numerical derivatives).
Having registered this caveat, the percentage of cases where the results were good to six digits or
better seems high enough to justify their printing in this form.
Chapter 26
Maximum likelihood estimation
26.1 Generic ML estimation with gretl

Maximum likelihood estimation is a cornerstone of modern inferential procedures. Gretl provides
a way to implement this method for a wide range of estimation problems, by use of the mle com-
mand. We give here a few examples.
To give a foundation for the examples that follow, we start from a brief reminder on the basics
1
of ML estimation. Given a sample of size T , it is possible to define the density function
for the
whole sample, namely the joint distribution of all the observations f (Y; θ), where Y = y1 , . . . , yT .
Its shape is determined by a k-vector of unknown parameters θ, which we assume is contained in
a set Θ, and which can be used to evaluate the probability of observing a sample with any given
characteristics.
After observing the data, the values Y are given, and this function can be evaluated for any legiti-
mate value of θ. In this case, we prefer to call it the likelihood function; the need for another name
stems from the fact that this function works as a density when we use the yt s as arguments and θ
as parameters, whereas in this context θ is taken as the function’s argument, and the data Y only
have the role of determining its shape.
In standard cases, this function has a unique maximum. The location of the maximum is unaffected
if we consider the logarithm of the likelihood (or log-likelihood for short): this function will be
denoted as
ℓ(θ) = log f (Y; θ)
The log-likelihood functions that gretl can handle are those where ℓ(θ) can be written as
T
X
ℓ(θ) = ℓt (θ)
t=1
which is true in most cases of interest. The functions ℓt (θ) are called the log-likelihood contribu-
tions.
Moreover, the location of the maximum is obviously determined by the data Y. This means that the
value
θ̂(Y) = Argmax ℓ(θ) (26.1)
θ∈Θ
is some function of the observed data (a statistic), which has the property, under mild conditions,
of being a consistent, asymptotically normal and asymptotically efficient estimator of θ.
Sometimes it is possible to write down explicitly the function θ̂(Y); in general, it need not be so. In
these circumstances, the maximum can be found by means of numerical techniques. These often
rely on the fact that the log-likelihood is a smooth function of θ, and therefore on the maximum
its partial derivatives should all be 0. The gradient vector, or score vector, is a function that enjoys
many interesting statistical properties in its own right; it will be denoted here as g(θ). It is a
1 We are supposing here that our data are a realization of continuous random variables. For discrete random variables,
everything continues to apply by referring to the probability function instead of the density. In both cases, the distribution
may be conditional on some exogenous variables.
235
Chapter 26. Maximum likelihood estimation 236
k-vector with typical element

T
∂ℓ(θ) X ∂ℓt (θ)
gi (θ) = =
∂θi t=1
∂θi
Gradient-based methods can be briefly illustrated as follows:
1. pick a point θ0 ∈ Θ;
2. evaluate g(θ0 );
3. if g(θ0 ) is “small”, stop. Otherwise, compute a direction vector d(g(θ0 ));
4. evaluate θ1 = θ0 + d(g(θ0 ));
5. substitute θ0 with θ1 ;
6. restart from 2.
Many algorithms of this kind exist; they basically differ from one another in the way they compute
the direction vector d(g(θ0 )), to ensure that ℓ(θ1 ) > ℓ(θ0 ) (so that we eventually end up on the
maximum).
The default method gretl uses to maximize the log-likelihood is a gradient-based algorithm known
as the BFGS (Broyden, Fletcher, Goldfarb and Shanno) method. This technique is used in most
econometric and statistical packages, as it is well-established and remarkably powerful. Clearly,
in order to make this technique operational, it must be possible to compute the vector g(θ) for
any value of θ. In some cases this vector can be written explicitly as a function of Y. If this is
not possible or too difficult the gradient may be evaluated numerically. The alternative Newton-
Raphson algorithm is also available. This method is more effective under some circumstances but
is also more fragile; see section 26.10 and chapter 37 for details.2
The choice of the starting value, θ0 , is crucial in some contexts and inconsequential in others. In
general, however, it is advisable to start the algorithm from “sensible” values whenever possible. If
a consistent estimator is available, this is usually a safe and efficient choice: this ensures that in
large samples the starting point will be likely close to θ̂ and convergence can be achieved in few
iterations.
The maximum number of iterations allowed for the BFGS procedure, and the relative tolerance
for assessing convergence, can be adjusted using the set command: the relevant variables are
bfgs_maxiter (default value 500) and bfgs_toler (default value, the machine precision to the
power 3/4).
26.2 Syntax
ML estimation in gretl is supported by the mle command block. This consists of an initial line
holding the keyword mle plus an equation for the loglikelihood; one or more statements within the
block (details below); and a trailer line to close the block: end mle. Option flags may be appended
to the trailer line.
Listing 26.1 gives a simple but complete example which serves to illustrate the equivalence of MLE
and OLS in the context of the normal linear model.
2 Note that some of the statements made below (for example, regarding estimation of the covariance matrix) have to
be modified when Newton’s method is used.

Listing 26.1: OLS and MLE [Download ▼]
open data9-7
list X = const INCOME PRICE
ols QNC X
matrix b = $coeff
scalar s2 = $sigma^2
scalar l2pi = log(2*$pi)
scalar n = $nobs
mle lt = -0.5*l2pi -0.5*log(s2) - 1/(2*s2) * uhat^2
series uhat = QNC - lincomb(X, b)
s2 = sum(uhat^2)/n
params b
end mle
Initial line of block

If possible the given expression should evaluate to a series or vector (contribution to the loglike-
lihood per observation). Failing that, it must evaluate to a scalar (the total loglikelihood). The
identifier on the left-hand side (lt in Listing 26.1) is up to the user. If the variable in question is
defined prior to the mle block it can be referenced after ML estimation; otherwise it is treated as a
temporary variable and is destroyed after estimation.
Lines within the block

These may take three forms:
1. “Helper” statements that calculate auxiliary quantities (in the example, uhat and s2). Such
statements will be evaluated before the loglikelihood and then re-evaluated on each iteration.
2. Keyword plus parameter, as in “params b”, which tells mle that the parameter to be adjusted
to maximize the loglikelihood is the vector b. This sort of statement can also be used to spec-
ify analytical derivatives of the loglikelihood with respect to the parameters; see section 26.7
for discussion and examples.
3. Statements employing print or printf to track the progress of calculation, which can be
useful for debugging.
Final line
In the example above this merely terminates the block, but if one wanted standard errors calculated
via a numerical approximation to the Hessian (for instance) one could substitute
end mle --hessian
For a full listing of applicable options see the mle entry in the Gretl Command Reference.
26.3 Covariance matrix and standard errors

By default the covariance matrix of the parameter estimates is based on the Outer Product of the
Gradient (OPG). That is,
−1
d OPG (θ̂) = G′ (θ̂)G(θ̂)
Var (26.2)
where G(θ̂) is the T × k matrix of contributions to the gradient. Other options are available. If the
--hessian flag is given, the covariance matrix is computed from a numerical approximation to the
Hessian at convergence. If the --robust option is given the quasi-ML “sandwich” estimator is used:
d QML (θ̂) = H(θ̂)−1 G′ (θ̂)G(θ̂)H(θ̂)−1

Var
where H denotes the numerical approximation to the Hessian. A refinement here is that if the hac
parameter is appended to the --robust option, as in
end mle --robust=hac
the sandwich estimator is augmented in the manner of Newey and West (1987) to allow for serial
correlation in the gradient. (Note that this only makes sense for time-series data.) In that case the
details of the HAC estimator can be controlled via the set command, as described in chapter 22.
Cluster-robust estimation is also available: in order to activate it, use the --cluster=clustvar,
where clustvar should be a discrete series. See section 22.5 for more details.
Note, however, that if the log-likelihood function supplied by the user just returns a scalar value —
as opposed to a series or vector holding per-observation contributions — then the OPG method is
not applicable and so the covariance matrix must be estimated via a numerical approximation to
the Hessian.
26.4 Gamma estimation

Suppose we have a sample of T independent and identically distributed observations from a Gamma
distribution. The density function for each observation xt is
αp p−1
f (xt ) = x exp (−αxt ) (26.3)
Γ (p) t
The log-likelihood for the entire sample can be written as the logarithm of the joint density of all
the observations. Since these are independent and identical, the joint density is the product of the
individual densities, and hence its log is
T T
" #
X αp p−1 X
ℓ(α, p) = log x exp (−αxt ) = ℓt (26.4)
t=1
Γ (p) t t=1
where
ℓt = p · log(αxt ) − γ(p) − log xt − αxt
and γ(·) is the log of the gamma function. In order to estimate the parameters α and p via ML, we
need to maximize (26.4) with respect to them. The corresponding gretl code snippet is
scalar alpha = 1
scalar p = 1
mle logl = p*ln(alpha * x) - lngamma(p) - ln(x) - alpha * x

params alpha p
end mle
The first two statements
alpha = 1
p = 1
are necessary to ensure that the variables alpha and p exist before the computation of logl is
attempted. Inside the mle block these variables (which could be either scalars, vectors or a com-
bination of the two — see below for an example) are identified as the parameters that should be
adjusted to maximize the likelihood via the params keyword. Their values will be changed by the
execution of the mle command; upon successful completion, they will be replaced by the ML esti-
mates. The starting value is 1 for both; this is arbitrary and does not matter much in this example
(more on this later).
The above code can be made more readable, and marginally more efficient, by defining a variable
to hold α · xt . This command can be embedded in the mle block as follows:
mle logl = p*ln(ax) - lngamma(p) - ln(x) - ax

series ax = alpha*x
params alpha p
end mle
The variable ax is not added to the params list, of course, since it is just an auxiliary variable to
facilitate the calculations. You can insert as many such auxiliary lines as you require before the
params line, with the restriction that they must contain either (a) commands to generate series,
scalars or matrices or (b) print commands (which may be used to aid in debugging).
In a simple example like this, the choice of the starting values is almost inconsequential; the algo-
rithm is likely to converge no matter what the starting values are. However, consistent method-of-
moments estimators of p and α can be simply recovered from the sample mean m and variance V :
since it can be shown that
E(xt ) = p/α V (xt ) = p/α2
it follows that the following estimators
ᾱ = m/V
p̄ = m · ᾱ
are consistent, and therefore suitable to be used as starting point for the algorithm. The gretl script
code then becomes
scalar m = mean(x)
scalar alpha = m/var(x)
scalar p = m*alpha
mle logl = p*ln(ax) - lngamma(p) - ln(x) - ax

series ax = alpha*x
params alpha p
end mle
Another thing to note is that sometimes parameters are constrained within certain boundaries: in
this case, for example, both α and p must be positive numbers. Gretl does not check for this: it
is the user’s responsibility to ensure that the function is always evaluated at an admissible point
in the parameter space during the iterative search for the maximum. An effective technique is to
define a variable for checking that the parameters are admissible and setting the log-likelihood as
undefined if the check fails. An example, which uses the conditional assignment operator, follows:
scalar m = mean(x)
scalar alpha = m/var(x)
scalar p = m*alpha
mle logl = check ? p*ln(ax) - lngamma(p) - ln(x) - ax : NA

series ax = alpha*x
scalar check = (alpha>0) && (p>0)
params alpha p
end mle
26.5 Stochastic frontier cost function

Note: this section has the sole purpose of illustrating the mle command. For the estimation of stochas-
tic frontier cost or production functions, you may want to use the frontier function package.
When modeling a cost function, it is sometimes worthwhile to incorporate explicitly into the sta-
tistical model the notion that firms may be inefficient, so that the observed cost deviates from
the theoretical figure not only because of unobserved heterogeneity between firms, but also be-
cause two firms could be operating at a different efficiency level, despite being identical in all other
respects. In this case we may write
Ci = Ci∗ + ui + vi
where Ci is some variable cost indicator, Ci∗ is its “theoretical” value, ui is a zero-mean disturbance
term and vi is the inefficiency term, which is supposed to be nonnegative by its very nature. A
linear specification for Ci∗ is often chosen. For example, the Cobb–Douglas cost function arises
when Ci∗ is a linear function of the logarithms of the input prices and the output quantities.
The stochastic frontier model is a linear model of the form yi = xi β + εi in which the error term εi
is the sum of ui and vi .
A common postulate is that ui ∼ N(0, σ 2 ) and vi ∼ N(0, σ 2 ). If independence between ui and

u v
vi is also assumed, then it is possible to show that the density function of εi has the form:
s
2 λεi 1 εi

f (εi ) = φ (26.5)
π σ σ σ
Φ
q Φ(·) and φ(·) are, respectively, the distribution and density function of the standard normal,
where
σ = σu2 + σv2 and λ = σ u
σv .
As a consequence, the log-likelihood for one observation takes the form (apart form an irrelevant
constant)
ε2
" #
λεi

ℓt = log Φ − log(σ ) + i 2
σ 2σ
Therefore, a Cobb–Douglas cost function with stochastic frontier is the model described by the
following equations:
log Ci = log Ci∗ + εi

m
X n
X
log Ci∗ = c+ βj log yij + αj log pij
j=1 j=1
εi = ui + vi
ui ∼ N(0, σu2 )

vi ∼ N(0, σv2 )

In most cases, one wants to ensure that the homogeneity of the cost function
Pn with respect to
the prices holds by construction. Since this requirement is equivalent to j=1 αj = 1, the above
equation for Ci∗ can be rewritten as
m
X n
X
log Ci − log pin = c + βj log yij + αj (log pij − log pin ) + εi (26.6)
j=1 j=2
The above equation could be estimated by OLS, but it would suffer from two drawbacks: first,
the OLS estimator for the intercept c is inconsistent because the disturbance term has a non-zero
expected value; second, the OLS estimators for the other parameters are consistent, but inefficient
in view of the non-normality of εi . Both issues can be addressed by estimating (26.6) by maximum
likelihood. Nevertheless, OLS estimation is a quick and convenient way to provide starting values
for the MLE algorithm.
Listing 26.2 shows how to implement the model described so far. The banks91 file contains part
of the data used in Lucchetti, Papi and Zazzaro (2001).
Listing 26.2: Estimation of stochastic frontier cost function (with scalar parameters) [Download ▼]
open banks91.gdt
# transformations
series cost = ln(VC)
series q1 = ln(Q1)
series q2 = ln(Q2)
series p1 = ln(P1)
series p2 = ln(P2)
series p3 = ln(P3)
# Cobb-Douglas cost function with homogeneity restrictions

# (for initialization)
series rcost = cost - p1
series rp2 = p2 - p1
ols rcost const q1 q2 rp2 rp3

# and inefficiency
scalar b0 = $coeff(const)
scalar b1 = $coeff(q1)
scalar b2 = $coeff(q2)
scalar b3 = $coeff(rp2)
scalar b4 = $coeff(rp3)
scalar su = 0.1
scalar sv = 0.1
mle logl = ln(cnorm(e*lambda/ss)) - (ln(ss) + 0.5*(e/ss)^2)

scalar ss = sqrt(su^2 + sv^2)
scalar lambda = su/sv
series e = rcost - b0*const - b1*q1 - b2*q2 - b3*rp2 - b4*rp3
params b0 b1 b2 b3 b4 su sv
end mle
The script in example 26.2 is relatively easy to modify to show how one can use vectors (that is,
1-dimensional matrices) for storing the parameters to optimize: example 26.3 holds essentially the
same script in which the parameters of the cost function are stored together in a vector. Of course,
this makes also possible to use variable lists and other refinements which make the code more
compact and readable.
26.6 GARCH models

GARCH models are handled by gretl via a native function. However, it is instructive to see how they
can be estimated through the mle command.3
3 The gig addon, which handles other variants of conditionally heteroskedastic models, uses mle as its internal engine.
Listing 26.3: Estimation of stochastic frontier cost function (with matrix parameters) [Download ▼]
open banks91.gdt
# transformations
series cost = ln(VC)
series q1 = ln(Q1)
series q2 = ln(Q2)
series p1 = ln(P1)
series p2 = ln(P2)
series p3 = ln(P3)

# (for initialization)
series rcost = cost - p1
list X = const q1 q2 rp2 rp3
ols rcost X
X = const q1 q2 rp2 rp3
# and inefficiency
matrix b = $coeff
scalar su = 0.1
scalar sv = 0.1
mle logl = ln(cnorm(e*lambda/ss)) - (ln(ss) + 0.5*(e/ss)^2)

scalar ss = sqrt(su^2 + sv^2)
scalar lambda = su/sv
series e = rcost - lincomb(X, b)
params b su sv
end mle
The following equations provide the simplest example of a GARCH(1,1) model:
yt = µ + εt
εt = ut · σt
ut ∼ N(0, 1)
2
ht = ω + αεt−1 + βht−1 .
Since the variance of yt depends on past values, writing down the log-likelihood function is not
simply a matter of summing the log densities for individual observations. As is common in time
series models, yt cannot be considered independent of the other observations in our sample, and
consequently the density function for the whole sample (the joint density for all observations) is
not just the product of the marginal densities.
Maximum likelihood estimation, in these cases, is achieved by considering conditional densities, so
what we maximize is a conditional likelihood function. If we define the information set at time t as

Ft = yt , yt−1 , . . . ,
then the density of yt conditional on Ft−1 is normal:
yt |Ft−1 ∼ N [µ, ht ] .
By means of the properties of conditional distributions, the joint density can be factorized as
follows  
T
Y
f (yt , yt−1 , . . .) =  f (yt |Ft−1 ) · f (y0 )
t=1
If we treat y0 as fixed, then the term f (y0 ) does not depend on the unknown parameters, and there-
fore the conditional log-likelihood can then be written as the sum of the individual contributions
as
XT
ℓ(µ, ω, α, β) = ℓt (26.7)
t=1
where " !# " #

1 yt − µ 1 (yt − µ)2
ℓt = log p φ p =− log(ht ) +
ht ht 2 ht
The following script shows a simple application of this technique, which uses the data file djclose;
it is one of the example dataset supplied with gretl and contains daily data from the Dow Jones
stock index.
open djclose
series y = 100*ldiff(djclose)
scalar mu = 0.0
scalar omega = 1
scalar alpha = 0.4
scalar beta = 0.0
mle ll = -0.5*(log(h) + (e^2)/h)

series e = y - mu
series h = var(y)
series h = omega + alpha*(e(-1))^2 + beta*h(-1)
params mu omega alpha beta
end mle
26.7 Analytical derivatives

Computation of the score vector is essential for the working of the BFGS method. In all the previous
examples, no explicit formula for the computation of the score was given, so the algorithm was fed
numerically evaluated gradients. Numerical computation of the score for the i-th parameter is
performed via a finite approximation of the derivative, namely
∂ℓ(θ1 , . . . , θn ) ℓ(θ1 , . . . , θi + h, . . . , θn ) − ℓ(θ1 , . . . , θi − h, . . . , θn )

≃
∂θi 2h
where h is a small number.

In many situations, this is rather efficient and accurate. A better approximation to the true deriva-
tive may be obtained by forcing mle to use a technique known as Richardson Extrapolation, which
gives extremely precise results, but is considerably more CPU-intensive. This feature may be turned
on by using the set command as in
set bfgs_richardson on
However, one might want to avoid the approximation and specify an exact function for the deriva-
tives. As an example, consider the following script:
nulldata 1000
series x1 = normal()
series ystar = x1 + x2 + x3 + normal()

series y = (ystar > 0)
scalar b0 = 0
scalar b1 = 0
scalar b2 = 0
scalar b3 = 0
mle logl = y*ln(P) + (1-y)*ln(1-P)

series ndx = b0 + b1*x1 + b2*x2 + b3*x3
series P = cnorm(ndx)
params b0 b1 b2 b3
end mle --verbose
Here, 1000 data points are artificially generated for an ordinary probit model:4 yt is a binary
variable, which takes the value 1 if yt∗ = β1 x1t + β2 x2t + β3 x3t + εt > 0 and 0 otherwise. Therefore,
yt = 1 with probability Φ(β1 x1t + β2 x2t + β3 x3t ) = πt . The probability function for one observation
can be written as
y
P (yt ) = πt t (1 − πt )1−yt
Since the observations are independent and identically distributed, the log-likelihood is simply the
sum of the individual contributions. Hence
T
X
ℓ= yt log(πt ) + (1 − yt ) log(1 − πt )
t=1
The --verbose switch at the end of the end mle statement produces a detailed account of the
iterations done by the BFGS algorithm.
4 Again, gretl does provide a native probit command (see section 38.1), but a probit model makes for a nice example
here.
In this case, numerical differentiation works rather well; nevertheless, computation of the analytical
∂ℓ
score is straightforward, since the derivative ∂βi can be written as
∂ℓ ∂ℓ ∂πt
= ·
∂βi ∂πt ∂βi
via the chain rule, and it is easy to see that
∂ℓ yt 1 − yt
= −
∂πt πt 1 − πt
∂πt
= φ(β1 x1t + β2 x2t + β3 x3t ) · xit
∂βi
The mle block in the above script can therefore be modified as follows:

series ndx = b0 + b1*x1 + b2*x2 + b3*x3
series m = dnorm(ndx)*(y/P - (1-y)/(1-P))
deriv b0 = m
deriv b1 = m*x1
deriv b2 = m*x2
deriv b3 = m*x3
end mle --verbose
Note that the params statement has been replaced by a series of deriv statements; these have the
double function of identifying the parameters over which to optimize and providing an analytical
expression for their respective score elements.
26.8 Debugging ML scripts

We have discussed above the main sorts of statements that are permitted within an mle block,
namely
• auxiliary commands to generate helper variables;
• deriv statements to specify the gradient with respect to each of the parameters; and
• a params statement to identify the parameters in case analytical derivatives are not given.
For the purpose of debugging ML estimators one additional sort of statement is allowed: you can
print the value of a relevant variable at each step of the iteration. This facility is more restricted
then the regular print command. The command word print should be followed by the name of
just one variable (a scalar, series or matrix).
In the last example above a key variable named m was generated, forming the basis for the analytical
derivatives. To track the progress of this variable one could add a print statement within the ML
block, as in

print m
26.9 Using functions

The mle command allows you to estimate models that gretl does not provide natively: in some
cases, it may be a good idea to wrap up the mle block in a user-defined function (see Chapter 14),
so as to extend gretl’s capabilities in a modular and flexible way.
As an example, we will take a simple case of a model that gretl does not yet provide natively:
the zero-inflated Poisson model, or ZIP for short.5 In this model, we assume that we observe a
mixed population: for some individuals, the variable yt is (conditionally on a vector of exogenous
covariates xt ) distributed as a Poisson random variate; for some others, yt is identically 0. The
trouble is, we don’t know which category a given individual belongs to.
For instance, suppose we have a sample of women, and the variable yt represents the number of
children that woman t has. There may be a certain proportion, α, of women for whom yt = 0 with
certainty (maybe out of a personal choice, or due to physical impossibility). But there may be other
women for whom yt = 0 just as a matter of chance — they haven’t happened to have any children
at the time of observation.
In formulae:
" y #
−µt µt t
P (yt = k|xt ) = αdt + (1 − α) e
yt !
µt = exp(xt β)
(
1 for yt = 0
dt =
0 for yt > 0
Writing a mle block for this model is not difficult:
mle ll = logprob
series xb = exp(b0 + b1 * x)
series d = (y=0)
series poiprob = exp(-xb) * xb^y / gamma(y+1)
series logprob = (alpha>0) && (alpha<1) ? \
log(alpha*d + (1-alpha)*poiprob) : NA
params alpha b0 b1
end mle -v
However, the code above has to be modified each time we change our specification by, say, adding
an explanatory variable. Using functions, we can simplify this task considerably and eventually be
able to write something easy like
list X = const x
zip(y, X)
Let’s see how this can be done. First we need to define a function called zip() that will take two ar-
guments: a dependent variable y and a list of explanatory variables X. An example of such function
can be seen in script 26.4. By inspecting the function code, you can see that the actual estimation
does not happen here: rather, the zip() function merely uses the built-in modprint command to
print out the results coming from another user-written function, namely zip_estimate().
The function zip_estimate() is not meant to be executed directly; it just contains the number-
crunching part of the job, whose results are then picked up by the end function zip(). In turn,
zip_estimate() calls other user-written functions to perform other tasks. The whole set of “in-
ternal” functions is shown in the panel 26.5.
All the functions shown in 26.4 and 26.5 can be stored in a separate inp file and executed once, at
the beginning of our job, by means of the include command. Assuming the name of this script file
is zip_est.inp, the following is an example script which (a) includes the script file, (b) generates a
simulated dataset, and (c) performs the estimation of a ZIP model on the artificial data.
set verbose off
5 The actual ZIP model is in fact a bit more general than the one presented here. The specialized version discussed in
this section was chosen for the sake of simplicity. For futher details, see Greene (2003).
Listing 26.4: Zero-inflated Poisson Model – user-level function [Download ▼]
/*
user-level function: estimate the model and print out
the results
*/
function void zip(series y, list X)
matrix coef_stde = zip_estimate(y, X)
printf "\nZero-inflated Poisson model:\n"
string parnames = "alpha,"
string parnames += varname(X)
modprint coef_stde parnames
end function
Listing 26.5: Zero-inflated Poisson Model — internal functions [Download ▼]
/* compute log probabilities for the plain Poisson model */

function series ln_poi_prob(series y, list X, matrix beta)
series xb = lincomb(X, beta)
return -exp(xb) + y*xb - lngamma(y+1)
end function
/* compute log probabilities for the zero-inflated Poisson model */

function series ln_zip_prob(series y, list X, matrix beta, scalar p0)
# check if the probability is in [0,1]; otherwise, return NA
if p0 > 1 || p0 < 0
series ret = NA
else
series ret = ln_poi_prob(y, X, beta) + ln(1-p0)
series ret = y==0 ? ln(p0 + exp(ret)) : ret
endif
return ret
end function
/* do the actual estimation (silently) */

function matrix zip_estimate(series y, list X)
# initialize alpha to a "sensible" value: half the frequency
# of zeros in the sample
scalar alpha = mean(y==0)/2
# initialize the coeffs (we assume the first explanatory
# variable is the constant here)
matrix coef = zeros(nelem(X), 1)
coef[1] = mean(y) / (1-alpha)
# do the actual ML estimation
mle ll = ln_zip_prob(y, X, coef, alpha)
params alpha coef
end mle --hessian --quiet
return $coeff ~ $stderr
end function
# include the user-written functions

include zip_est.inp
# generate the artificial data

nulldata 1000
set seed 732237
scalar truep = 0.2
scalar b0 = 0.2
scalar b1 = 0.5
series x = normal()
series y = (uniform()<truep) ? 0 : randgen(p, exp(b0 + b1*x))
list X = const x
# estimate the zero-inflated Poisson model

zip(y, X)
The results are as follows:
Zero-inflated Poisson model:
coefficient std. error z-stat p-value

-------------------------------------------------------
alpha 0.209738 0.0261746 8.013 1.12e-15 ***
const 0.167847 0.0449693 3.732 0.0002 ***
x 0.452390 0.0340836 13.27 3.32e-40 ***
A further step may then be creating a function package for accessing your new zip() function via
gretl’s graphical interface. For details on how to do this, see section 14.5.
26.10 Advanced use of mle: functions, analytical derivatives, algorithm choice

All the techniques decribed in the previous sections may be combined, and mle can be used for
solving non-standard estimation problems (provided, of course, that one chooses maximum likeli-
hood as the preferred inference method).
The strategy that, as of this writing, has proven most successful in designing scripts for this pur-
pose is:
• Modularize your code as much as possible.
• Use analytical derivatives whenever possible.
• Choose your optimization method wisely.
In the rest of this section, we will expand on the probit example of section 26.7 to give the reader
an idea of what a “heavy-duty” application of mle looks like. Most of the code fragments come from
mle-advanced.inp, which is one of the sample scripts supplied with the standard installation of
gretl (see under File > Script files > Practice File).
BFGS with and without analytical derivatives

The example in section 26.7 can be made more general by using matrices and user-written func-
tions. Consider the following code fragment:
list X = const x1 x2 x3
matrix b = zeros(nelem(X),1)

params b
end mle
In this context, the fact that the model we are estimating has four explanatory variables is totally
incidental: the code is written in such a way that we could change the content of the list X without
having to make any other modification. This was made possible by:
1. gathering the parameters to estimate into a single vector b rather than using separate scalars;
2. using the nelem() function to initialize b, so that its dimension is kept track of automatically;
3. using the lincomb() function to compute the index function.
A parallel enhancement could be achieved in the case of analytically computed derivatives: since
b is now a vector, mle expects the argument to the deriv keyword to be a matrix, in which each
column is the partial derivative to the corresponding element of b. It is useful to re-write the score
for the i-th observation as
∂ℓi
= mi x′i (26.8)
∂β
where mi is the “signed Mills’ ratio”, that is
φ(x′i β) φ(x′i β)
mi = yi ′ − (1 − yi ) ,
Φ(xi β) 1 − Φ(x′i β)
which was computed in section 26.7 via
Here, we will code it in a somewhat terser way as
series m = y ? invmills(-ndx) : -invmills(ndx)
and make use of the conditional assignment operator and of the specialized function invmills()
for efficiency. Building the score matrix is now easily achieved via

matrix mX = {X}
deriv b = mX .* {m}
end mle
in which the {} operator was used to turn series and lists into matrices (see chapter 17). However,
proceeding in this way for more complex models than probit may imply inserting into the mle
block a long series of instructions; the example above merely happens to be short because the
score matrix for the probit model is very easy to write in matrix form.
A better solution is writing a user-level function to compute the score and using that inside the mle
block, as in
function matrix score(matrix b, series y, list X)


return {m} .* {X}
end function
[...]

deriv b = score(b, y, X)
end mle
In this way, no matter how complex the computation of the score is, the mle block remains nicely
compact.
Newton’s method and the analytical Hessian

As mentioned above, gretl offers the user the option of using Newton’s method for maximizing the
log-likelihood. In terms of the notation used in section 26.1, the direction for updating the inital
parameter vector θ0 is given by
d [g(θ0 )] = −λH(θ0 )−1 g(θ0 ), (26.9)
where H(θ) is the Hessian of the total loglikelihood computed at θ and 0 < λ < 1 is a scalar called
the step length.
The above expression makes a few points clear:
1. At each step, it must be possible to compute not only the score g(θ), but also its derivative
H(θ);
2. the matrix H(θ) should be nonsingular;
3. it is assumed that for some positive value of λ, ℓ(θ1 ) > ℓ(θ0 ); in other words, that going in
the direction d [g(θ0 )] leads upwards for some step length.
The strength of Newton’s method lies in the fact that, if the loglikelihood is globally concave,
then (26.9) enjoys certain optimality properties and the number of iterations required to reach the
maximum is often much smaller than it would be with other methods, such as BFGS. However, it
may have some disadvantages: for a start, the Hessian H(θ) may be difficult or very expensive to
compute; moreover, the loglikelihood may not be globally concave, so for some values of θ, the
matrix H(θ) is not negative definite or perhaps even singular. Those cases are handled by gretl’s
implementation of Newton’s algorithm by means of several heuristic techniques6 , but a number of
adverse consequences may occur, which range from longer computation time for optimization to
non-convergence of the algorithm.
As a consequence, using Newton’s method is advisable only when the computation of the Hessian
is not too CPU-intensive and the nature of the estimator is such that it is known in advance that
the loglikelihood is globally concave. The probit models satisfies both requisites, so we will expand
the preceding example to illustrate how to use Newton’s method in gretl.
A first example may be given simply by issuing the command
set optimizer newton
6 The gist to it is that, if H is not negative definite, it is substituted by k · dg(H) + (1 − k) · H, where k is a suitable
scalar; however, if you’re interested in the precise details, you’ll be much better off looking at the source code: the file
you’ll want to look at is lib/src/gretl_bfgs.c.
before the mle block.7 This will instruct gretl to use Newton’s method instead of BFGS. If the deriv
keyword is used, gretl will differentiate the score function numerically; otherwise, if the score
has to be computed itself numerically, gretl will calculate H(θ) by differentiating the loglikelihood
numerically twice. The latter solution, though, is generally to be avoided, as may be extremely
time-consuming and may yield imprecise results.
A much better option is to calculate the Hessian analytically and have gretl use its true value rather
than a numerical approximation. In most cases, this is both much faster and numerically stable,
but of course comes at the price of having to differentiate the loglikelihood twice to respect with
the parameters and translate the resulting expressions into efficient hansl code.
Luckily, both tasks are relatively easy in the probit case: the matrix of second derivatives of ℓi may
be written as
∂ 2 ℓi
′

= −m i mi + xi β xi x′i
∂β∂β′
so the total Hessian is  
w1
n w2
 
X ∂ 2 ℓi 
′

= −X X (26.10)

∂β∂β′
 ..
i=1

 . 

wn

where wi = mi mi + x′i β . It can be shown that wi > 0, so the Hessian is guaranteed to be negative
definite in all sensible cases and the conditions are ideal for applying Newton’s method.
A hansl translation of equation (26.10) may look like
function void Hess(matrix *H, matrix b, series y, list X)

/* computes the negative Hessian for a Probit model */
series w = m*(m+ndx)
matrix mX = {X}
H = (mX .* {w})’mX
end function
There are two characteristics worth noting of the function above. For a start, it doesn’t return
anything: the result of the computation is simply stored in the matrix pointed at by the first
argument of the function. Second, the result is not the Hessian proper, but rather its negative. This
function becomes usable from within an mle block by the keyword hessian. The syntax is
mle ...
...
hessian funcname(&mat_addr, ...)
end mle
In other words, the hessian keyword must be followed by the call to a function whose first argu-
ment is a matrix pointer which is supposed to be filled with the negative of the Hessian at θ.
We said above (section 26.1) that the covariance matrix of the parameter estimates is by default
estimated using the Outer Product of the Gradient (so long as the log-likelihood function returns
the per-observation contributions). However, if you supply a function that computes the Hessian
then by default it is used in estimating the covariance matrix. If you wish to impose use of OPG
instead, append the --opg option to the end of the mle block.
Note that gretl does not perform any numerical check on whether a user-supplied function com-
putes the Hessian correctly. On the one hand, this means that you can trick mle into using alter-
natives to the Hessian and thereby implement other optimization methods. For example, if you
7 To go back to BFGS, you use set optimizer bfgs.
substitute in equation 26.9 the Hessian H with the negative of the OPG matrix −G′ G, as defined in
(26.2), you get the so-called BHHH optimization method (see Berndt et al. (1974)). Again, the sample
file mle-advanced.inp provides an example. On the other hand, you may want to perform a check
of your analytically-computed H matrix versus a numerical approximation.
If you have a function that computes the score, this is relatively simple to do by using the fdjac
function, briefly described in section 37.3, which computes a numerical approximation to a deriva-
tive. In practice, you need a function computing g(θ) as a row vector and then use fdjac to
differentiate it numerically with respect to θ. The result can then be compared to your analytically-
computed Hessian. The code fragment below shows an example of how this can be done in the
probit case:
function matrix totalscore(matrix *b, series y, list X)

/* computes the total score */
return sumc(score(b, y, X))
end function
function void check(matrix b, series y, list X)

/* compares the analytical Hessian to its numerical
approximation obtained via fdjac */
matrix aH
Hess(&aH, b, y, X) # stores the analytical Hessian into aH
matrix nH = fdjac(b, "totalscore(&b, y, X)")

nH = 0.5*(nH + nH’) # force symmetry
printf "Numerical Hessian\n%16.6f\n", nH

printf "Analytical Hessian (negative)\n%16.6f\n", aH
printf "Check (should be zero)\n%16.6f\n", nH + aH
end function
26.11 Estimating constrained models

In many cases, you may want to perform ML estimation of a model under some kind of constraint.
Mathematically, this amounts to maximizing the log-likelihood ℓ(θ) under some restriction. As-
sume that the restriction can be represented as g(θ) = 0, where the function g(·) is differentiable.
On paper, the most straightforward way to accomplish this task is to set up a Lagrangean
L(θ) = ℓ(θ) + λ′ g(θ)
and solve the first-order conditions that arise from differentiating the Lagrangean with respect to
θ and λ.
If an explicit solution can be found, then all is well; but in many cases the resulting system of
equations cannot be solved explicitly, so that numerical optimisation in necessary. In such cases
the approach above is not particularly useful; a different strategy is much more convenient.
The idea is to find an alternative parametrization — a means of expressing the vector θ as a (differ-
entiable) function of a smaller set of parameters ψ. In other words, find a function h(·) such that
any admissible value of θ can be written as θ = h(ψ) and g[h(ψ)] = 0 for any value of ψ. Then
maximization of the log-likelihood is simply a question of operating on ℓ∗ (ψ) = ℓ[h(ψ)] using an
ordinary unconstrained numerical optimization routine.
Once the ML estimate ψ̂ is available, it is easy to recover the corresponding constrained vector
θ̂ = h(ψ̂). Computing the covariance matrix involves an extra step, known as the delta method: the
asymptotic covariance matrix of θ̂ can be computed as

V θ̂ = J(ψ̂)′ V ψ̂ J(ψ̂)

(26.11)
where J is the Jacobian matrix, holding the partial derivatives of h(ψ). It is recommended that the
Jacobian matrix should be computed analytically whenever possible, but as a fallback strategy, nu-
merical differentiation (available via the function fdjac — see section 37.3) is a viable alternative.
Note that the matrix produced by this method will be singular by construction.
The example reported in script 26.6 is perhaps a little contrived, but useful to elucidate the tech-
nique. Suppose we wish to estimate mean and variance of an iid sample of Gaussian random vari-
ables, under the constraint that V (xiP ) = σ 2 = exp[E(xi )] = exp(µ). Of course the unconstrained
2 −1 2
ML estimators µ̂ = X̄ and σ̂ = n i (xi − X̄) are not guaranteed to satisfy the constraints (in
fact, the probability that they do is 0).
The Lagrangean in this case would be
n 1 X
L(θ) = K − log σ 2 − (xi − µ)2 + λ(eµ − σ 2 )
2 2σ 2 i
and finding an explicit solution by solving the first-order conditions is not at all easy. Fortunately,
numerical optimization becomes straightforward by expressing the constrained parameters as
h i′
θ = µ, σ 2 = [ψ, exp(ψ)]′ = h(ψ);
after maximizing the log-likelihood, the covariance matrix for θ can be recovered by computing the
Jacobian as
dσ 2
h i h i
dµ
J(ψ) = dψ dψ
= 1 exp(ψ)
and applying formula (26.11).
Running the example script should produce the following output:
unconstrained estimates: mean = 1.00314, variance = 2.8903

check: vhat - exp(muhat) = 0.163481
Model 1: ML, using observations 1-1000

loglik = -0.5*log(2*$pi) - 0.5*log(s2) - 0.5*(x-m)^2/s2
Standard errors based on Outer Products matrix
estimate std. error z p-value

----------------------------------------------------
psi[1] 1.03763 0.0357311 29.04 2.07e-185 ***
Log-likelihood -1949.972 Akaike criterion 3901.943

Schwarz criterion 3906.851 Hannan-Quinn 3903.808
check: vhat - exp(muhat) = 0
coefficient std. error z p-value

-------------------------------------------------------
mean 1.03763 0.0357311 29.04 2.07e-185 ***
variance 2.82251 0.100851 27.99 2.35e-172 ***
26.12 Handling non-convergence gracefully

If the numerical aspects of the estimation procedure are complex, it is possible that mle fails to
find the maximum within the number of iterations stipulated via the bfgs_maxiter state variable
(which defaults to 500).
In these cases, mle will exit with error and it’s up to the user to handle the situation appropriately.
For example, it is possible that mle is used inside a loop and you don’t want the loop to stop in case
convergence is not achieved. The catch command modifier (see also the Gretl Command Reference)
is an excellent tool for this purpose.
Listing 26.6: Example of ML estimation of a model under constraints [Download ▼]
set verbose off

set seed 7120
function matrix h(matrix psi)

ret = psi[1] | exp(psi[1])
return ret
end function
function matrix anJacob(matrix psi)

# the derivative of h
return 1 ~ exp(psi[1])
end function
nulldata 1000
# generate artificial data from a N(1, e) distribution
series x = 1 + normal() * exp(0.5)
# show that the unconstrained estimates don’t satisfy the restriction
scalar muhat = mean(x)

scalar s2hat = sst(x)/$nobs
printf "unconstrained estimates: mean = %g, variance = %g\n", muhat, s2hat
printf "check: vhat - exp(muhat) = %g\n\n", s2hat - exp(muhat)
# now estimate under the constraint exp(mean) = variance
psi = {1}
mle loglik = -0.5*log(2*$pi) - 0.5*log(s2) - 0.5*(x-m)^2/s2

matrix par = h(psi)
scalar m = par[1]
scalar s2 = par[2]
params psi
end mle
# now map psi to the constrained parametrisation
matrix par = h(psi)
# show that now the constraint holds
printf "check: vhat - exp(muhat) = %g\n\n", par[2] - exp(par[1])
# take care of the covariance matrix
matrix vpar = qform(anJacob(psi)’, $vcv)

# alternatively, one could use the numerical Jacobian, as in
# matrix vpar = qform(fdjac(psi, "h(psi)"), $vcv)
# finally, print out the constrained parameters via "modprint"
matrix cs = par ~ sqrt(diag(vpar))

modprint cs "mean variance"
The example provided in listing 26.7 illustrates the usage of catch in an artificially simple context:
we use the mle command for estimating mean and variance of a Gaussian rv (of course you don’t
need the mle apparatus for this, but it makes for a nice example). The gist of the example is using
the set bfgs_maxiter command to force mle to abort after a very small number of iterations, so
that you can have an idea on how to use the catch modifier and the associated $error accessor to
handle the situation.
You may want to increase the maximum number if BFGS iterations in the example to check what
happens if the algorithm is allowed to converge. Note that, upon successful completion of mle,
a bundle named $model is available, containing several quantities that may be of your interest,
including the total number of function evaluations.
Listing 26.7: Handling non-convergence via catch [Download ▼]
set verbose off

nulldata 200
set seed 8118
# generate simulated data from a N(3,4) variate

series x = normal(3,2)
# set starting values

scalar m = 0
scalar s2 = 1
# set iteration limit to a ridiculously low value

set bfgs_maxiter 10
# perform ML estimation; note the "catch" modifier

catch mle loglik = -0.5* (log(2*$pi) + log(s2) + e2/s2)
series e2 = (x - m)^2
params m s2
end mle --quiet
# grab the error and proceed as needed

err = $error
if err
printf "Not converged! (m = %g, s2 = %g)\n", m, s2
else
printf "Converged after %d iterations\n", $model.grcount
cs = $coeff ~ sqrt(diag($vcv))
pn = "m s2"
modprint cs pn
endif
Chapter 27
GMM estimation
27.1 Introduction and terminology

The Generalized Method of Moments (GMM) is a very powerful and general estimation method,
which encompasses practically all the parametric estimation techniques used in econometrics. It
was introduced in Hansen (1982) and Hansen and Singleton (1982); an excellent and thorough
treatment is given in chapter 17 of Davidson and MacKinnon (1993).
The basic principle on which GMM is built is rather straightforward. Suppose we wish to estimate
a scalar parameter θ based on a sample x1 , x2 , . . . , xT . Let θ0 indicate the “true” value of θ. Theo-
retical considerations (either of statistical or economic nature) may suggest that a relationship like
the following holds:
E xt − g(θ) = 0 a θ = θ0 , (27.1)
with g(·) a continuous and invertible function. That is to say, there exists a function of the data
and the parameter, with the property that it has expectation zero if and only if it is evaluated at the
true parameter value. For example, economic models with rational expectations lead to expressions
like (27.1) quite naturally.
If the sampling model for the xt s is such that some version of the Law of Large Numbers holds,
then
T
1 X p
X̄ = xt −→ g(θ0 );
T t=1
hence, since g(·) is invertible, the statistic

p
θ̂ = g −1 (X̄) −→ θ0 ,
so θ̂ is a consistent estimator of θ. A different way to obtain the same outcome is to choose, as an

estimator of θ, the value that minimizes the objective function
 2
T
1 X 2
F (θ) =  (xt − g(θ)) = X̄ − g(θ) ; (27.2)
T t=1
the minimum is trivially reached at θ̂ = g −1 (X̄), since the expression in square brackets equals 0.
The above reasoning can be generalized as follows: suppose θ is an n-vector and we have m
relations like
E [fi (xt , θ)] = 0 for i = 1 . . . m, (27.3)
where E[·] is a conditional expectation on a set of p variables zt , called the instruments. In the
above simple example, m = 1 and f (xt , θ) = xt − g(θ), and the only instrument used is zt = 1.
Then, it must also be true that
h i h i
E fi (xt , θ) · zj,t = E fi,j,t (θ) = 0 for i = 1 . . . m and j = 1 . . . p; (27.4)
equation (27.4) is known as an orthogonality condition, or moment condition. The GMM estimator is
defined as the minimum of the quadratic form
F (θ, W ) = f̄′ W f̄, (27.5)
256
Chapter 27. GMM estimation 257
where f̄ is a (1 × m · p) vector holding the average of the orthogonality conditions and W is some
symmetric, positive definite matrix, known as the weights matrix. A necessary condition for the
minimum to exist is the order condition n ≤ m · p.
The statistic
θ̂ = Argmin F (θ, W ) (27.6)
θ
is a consistent estimator of θ whatever the choice of W . However, to achieve maximum asymp-

totic efficiency W must be proportional to the inverse of the long-run covariance matrix of the
orthogonality conditions; if W is not known, a consistent estimator will suffice.
These considerations lead to the following empirical strategy:
1. Choose a positive definite W and compute the one-step GMM estimator θ̂1 . Customary choices
for W are Im·p or Im ⊗ (Z ′ Z)−1 .
2. Use θ̂1 to estimate V (fi,j,t (θ)) and use its inverse as the weights matrix. The resulting esti-
mator θ̂2 is called the two-step estimator.
3. Re-estimate V (fi,j,t (θ)) by means of θ̂2 and obtain θ̂3 ; iterate until convergence. Asymp-
totically, these extra steps are unnecessary, since the two-step estimator is consistent and
efficient; however, the iterated estimator often has better small-sample properties and should
be independent of the choice of W made at step 1.
In the special case when the number of parameters n is equal to the total number of orthogonality
conditions m · p, the GMM estimator θ̂ is the same for any choice of the weights matrix W , so the
first step is sufficient; in this case, the objective function is 0 at the minimum.
If, on the contrary, n < m · p, the second step (or successive iterations) is needed to achieve
efficiency, and the estimator so obtained can be very different, in finite samples, from the one-
step estimator. Moreover, the value of the objective function at the minimum, suitably scaled by
the number of observations, yields Hansen’s J statistic; this statistic can be interpreted as a test
statistic that has a χ 2 distribution with m · p − n degrees of freedom under the null hypothesis of
correct specification. See Davidson and MacKinnon (1993, section 17.6) for details.
In the following sections we will show how these ideas are implemented in gretl through some
examples.
27.2 GMM as Method of Moments

This section draws from a kind contribution by Alecos Papadopoulos, whom we thank.
A very simple illustration of GMM can be given by dropping the “G”, via an example of the time-
honored statistical technique known as “method of moments”; let’s see how to estimate the param-
eters of a gamma distribution, which we also used as an example for ML estimation in section 26.4.
Assume that we have an i.i.d. sample of size T from a gamma distribution. The gamma density can
be parameterized in terms of the two parameters p (shape) and θ (scale), both real and positive.1
In order to estimate them by the method of moments, we need two moment conditions so that we
have two equations and two unknowns (in the GMM jargon, this amounts to exact identification).
The two relations we need are
E(xi ) = p · θ V (xi ) = p · θ 2
1 In section 26.4 we used a slightly different, perhaps more common, parametrization, employing θ = 1/α. We are
switching to the shape/scale parametrization here for the sake of convenience.

These will become our moment conditions; substituting the finite sample analogues of the theoret-
ical moments we have
X̄ = p̂ · θ̂ (27.7)
2
V (xi ) = p̂ · θ̂ (27.8)
V̂
Of course, the two equations above are easy to solve analytically, giving θ̂ = X̄ and p̂ = X̄ , (V̂ being
θ̂
the sample variance of xi ), but it’s instructive to see how the gmm command will solve this system
of equations numerically.
We feed gretl the necessary ingredients for GMM estimation in a command block, starting with gmm
and ending with end gmm. Three elements are compulsory within a gmm block:
1. one or more orthog statements
2. one weights statement
3. one params statement
The three elements should be given in the stated order.

The orthog statements are used to specify the orthogonality conditions. They must follow the
syntax
orthog x ; Z
where x may be a series, matrix or list of series and Z may also be a series, matrix or list. Note the
structure of the orthogonality condition: it is assumed that the term to the left of the semicolon
represents a quantity that depends on the estimated parameters (and so must be updated in the
process of iterative estimation), while the term on the right is a constant function of the data.
The weights statement is used to specify the initial weighting matrix and its syntax is straightfor-
ward.
The params statement specifies the parameters with respect to which the GMM criterion should be
minimized; it follows the same logic and rules as in the mle and nls commands.
The minimum is found through numerical minimization via BFGS (see chapters 37 and 26). The
progress of the optimization procedure can be observed by appending the --verbose switch to
the end gmm line.
Equations 27.7 and 27.8 are not yet in the “moment condition” form required by the gmm command.
We need to transform them and arrive at something looking like E(ej,i zj,i ) = 0, with j = 1 . . . 2.
Therefore, we need two corresponding observable variables e1 and e2 with corresponding instru-
ments z1 and z2 and tell gretl that Ê(ej zj ) = 0 must be satisfied (where we used the Ê(·) notation
to indicate sample moments).
If we define the instrument as a series of ones, and set e1,i = xi − pθ, then we can re-write the first
moment condition as
Ê[(xi − pθ) · 1] = 0.
This is in the form required by the gmm command: in the required input statement “orthog e ; z”,
e will be the variable on the left (defined as a series) and z will the variable to the right of the
semicolon. Since z1,i = 1 for all i, we can use the built-in series const for that.
For the second moment condition we have, analogously,
nh i o
Ê (xi − X̄)2 − pθ 2 · 1 = 0,
so that by setting e2,i = (xi − X̄)2 − pθ 2 and z2 = z1 we can re-write the second moment condition
as Ê[e2,i · 1] = 0.
The weighting matrix, which is required by the gmm command, can be set to any 2 × 2 positive
definite matrix, since under exact identification the choice does not matter and its dimension is
determined by the number of orthogonality conditions. Therefore, we’ll use the identity matrix.
Example code follows:
# create an empty data set

nulldata 200
# fix a random seed

set seed 2207092
#generate a gamma random variable with, say, shape p = 3 and scale theta = 2
series x = randgen(G, 3, 2)
#declare and set some initial value for parameters p and theta
scalar p = 1
scalar theta =1
#create the weight matrix as the identity matrix

matrix W = I(2)
#declare the series to be used in the orthogonality conditions

series e1 = 0
series e2 = 0
gmm
scalar m = mean(x)
series e1 = x - p*theta
series e2 = (x - m)^2 - p*theta^2
orthog e1 ; const
orthog e2 ; const
weights W
params p theta
end gmm
The corresponding output is
Model 1: 1-step GMM, using observations 1-200

---------------------------------------------------
p 3.09165 0.346565 8.921 4.63e-19 ***
theta 1.89983 0.224418 8.466 2.55e-17 ***
GMM criterion: Q = 4.97341e-28 (TQ = 9.94682e-26)
If we want to use the unbiased estimator for the sample variance, we’d have to adjust the second
moment condition by substituting
series e2 = (x - m)^2 - p*theta^2
with
scalar adj = $nobs / ($nobs - 1)

series e2 = adj * (x - m)^2 - p*theta^2
with the corresponding slight change in the output:
Model 1: 1-step GMM, using observations 1-200

---------------------------------------------------
p 3.07619 0.344832 8.921 4.63e-19 ***
theta 1.90937 0.225546 8.466 2.55e-17 ***
GMM criterion: Q = 2.80713e-28 (TQ = 5.61426e-26)
One can observe tiny improvements in the point estimates, since both moved a tad closer to the
true values. This, however, is just a small-sample effect and not something you should expect in
larger samples.
27.3 OLS as GMM

Let us now move to an example that is closer to econometrics proper: the linear model yt =
xt β + ut . Although most of us are used to read it as the sum of a hazily defined “systematic
part” plus an equally hazy “disturbance”, a more rigorous interpretation of this familiar expression
comes from the hypothesis that the conditional mean E(yt |xt ) is linear and the definition of ut as
yt − E(yt |xt ).
From the definition of ut , it follows that E(ut |xt ) = 0. The following orthogonality condition is
therefore available:
E [f (β)] = 0, (27.9)
where f (β) = (yt − xt β)xt . The definitions given in section 27.1 therefore specialize here to:
• θ is β;
• the instrument is xt ;
• fi,j,t (θ) is (yt −xt β)xt = ut xt ; the orthogonality condition is interpretable as the requirement
that the regressors should be uncorrelated with the disturbances;
• W can be any symmetric positive definite matrix, since the number of parameters equals the
number of orthogonality conditions. Let’s say we choose I.
• The function F (θ, W ) is in this case

 2
T
1 X
F (θ, W ) =  (ût xt )
T t=1
and it is easy to see why OLS and GMM coincide here: the GMM objective function has the
same minimizer as the objective function of OLS, the residual sum of squares. Note, however,
that the two functions are not equal to one another: at the minimum, F (θ, W ) = 0 while the
minimized sum of squared residuals is zero only in the special case of a perfect linear fit.
The code snippet below uses gretl’s gmm command to make the above operational. The series e
holds the “residuals” and the series x holds the regressor. If x had been a list (or a matrix), the
orthog statement would have generated one orthogonality condition for each element (or column)
of x.
/* initialize stuff */
series e = 0
scalar beta = 0
matrix W = I(1)
/* proceed with estimation */

gmm
series e = y - x*beta
orthog e ; x
weights W
params beta
end gmm
27.4 TSLS as GMM

Moving closer to the proper domain of GMM, we now consider two-stage least squares (TSLS) as a
case of GMM.
TSLS is employed in the case where one wishes to estimate a linear model of the form yt = Xt β+ut ,
but where one or more of the variables in the matrix X are potentially endogenous — correlated with
the error term, u. We proceed by identifying a set of instruments, Zt , which are explanatory for
the endogenous variables in X but which are plausibly uncorrelated with u. The classic two-stage
procedure is (1) regress the endogenous elements of X on Z; then (2) estimate the equation of
interest, with the endogenous elements of X replaced by their fitted values from (1).
An alternative perspective is given by GMM. We define the residual ût as yt − Xt β̂, as usual. But
instead of relying on E(u|X) = 0 as in OLS, we base estimation on the condition E(u|Z) = 0. In this
case it is natural to base the initial weighting matrix on the covariance matrix of the instruments.
Listing 27.1 presents a model from Stock and Watson’s Introduction to Econometrics. The demand
for cigarettes is modeled as a linear function of the logs of price and income; income is treated as
exogenous while price is taken to be endogenous and two measures of tax are used as instruments.
Since we have two instruments and one endogenous variable the model is over-identified.
In the GMM context, this happens when you have more orthogonality conditions than parameters to
estimate. If so, asymptotic efficiency gains can be expected by iterating the procedure once or more.
This is accomplished by specifying, after the end gmm statement, two mutually exclusive options:
--two-step or --iterate, whose meaning should be obvious. Note that when the problem is over-
identified, the weights matrix will influence the solution you get from the 1- and 2-step procedures.
☞ In cases other than one-step estimation the specified weights matrix will be overwritten with the final
weights on completion of the gmm command. If you wish to execute more than one GMM block with a
common starting-point it is therefore necessary to reinitialize the weights matrix between runs.
Partial output from this script is shown in 27.2. The estimated standard errors from GMM are
robust by default; if we supply the --robust option to the tsls command we get identical results.2
After the end gmm statement two mutually exclusive options can be specified: --two-step or
--iterate, whose meaning should be obvious.
27.5 Covariance matrix options

The covariance matrix of the estimated parameters depends on the choice of W through
Σ̂ = (J ′ W J)−1 J ′ W ΩW J(J ′ W J)−1 (27.10)
2 The data file used in this example is available in the Stock and Watson package for gretl. See http://gretl.
sourceforge.net/gretl_data.html.
Listing 27.1: TSLS via GMM [Download ▼]
open cig_ch10.gdt
# real avg price including sales tax
ravgprs = avgprs / cpi
# real avg cig-specific tax
rtax = tax / cpi
# real average total tax
rtaxs = taxs / cpi
# real average sales tax
rtaxso = rtaxs - rtax
# logs of consumption, price, income
lpackpc = log(packpc)
lravgprs = log(ravgprs)
perinc = income / (pop*cpi)
lperinc = log(perinc)
# restrict sample to 1995 observations
smpl --restrict year==1995
# Equation (10.16) by tsls
list xlist = const lravgprs lperinc
list zlist = const rtaxso rtax lperinc
tsls lpackpc xlist ; zlist --robust
# setup for gmm

matrix Z = { zlist }
matrix W = inv(Z’Z)
series e = 0
scalar b0 = 1
scalar b1 = 1
scalar b2 = 1
gmm e = lpackpc - b0 - b1*lravgprs - b2*lperinc

orthog e ; Z
weights W
params b0 b1 b2
end gmm
Listing 27.2: TSLS via GMM: partial output
Model 1: TSLS estimates using the 48 observations 1-48

Dependent variable: lpackpc
Instruments: rtaxso rtax
Heteroskedasticity-robust standard errors, variant HC0
VARIABLE COEFFICIENT STDERROR T STAT P-VALUE
const 9.89496 0.928758 10.654 <0.00001 ***

lravgprs -1.27742 0.241684 -5.286 <0.00001 ***
lperinc 0.280405 0.245828 1.141 0.25401
Model 2: 1-step GMM estimates using the 48 observations 1-48

e = lpackpc - b0 - b1*lravgprs - b2*lperinc
PARAMETER ESTIMATE STDERROR T STAT P-VALUE
b0 9.89496 0.928758 10.654 <0.00001 ***

b1 -1.27742 0.241684 -5.286 <0.00001 ***
b2 0.280405 0.245828 1.141 0.25401
GMM criterion = 0.0110046
where J is a Jacobian term

∂ f¯i
Jij =
∂θj
and Ω is the long-run covariance matrix of the orthogonality conditions.
Gretl computes J by numeric differentiation (there is no provision for specifying a user-supplied
analytical expression for J at the moment). As for Ω, a consistent estimate is needed. The simplest
choice is the sample covariance matrix of the ft s:
T
1 X
Ω̂0 (θ) = ft (θ)ft (θ)′ (27.11)
T t=1
This estimator is robust with respect to heteroskedasticity, but not with respect to autocorrela-
tion. A heteroskedasticity- and autocorrelation-consistent (HAC) variant can be obtained using
the Bartlett kernel or similar. A univariate version of this is used in the context of the lrvar()
function—see equation (22.6). The multivariate version is set out in equation (27.12).
 
T −k k
1 XX
Ω̂k (θ) = wi ft (θ)ft−i (θ)′  , (27.12)
T t=k i=−k
Gretl computes the HAC covariance matrix by default when a GMM model is estimated on time
series data. You can control the kernel and the bandwidth (that is, the value of k in 27.12) using
the set command. See chapter 22 for further discussion of HAC estimation. You can also ask gretl
not to use the HAC version by saying
set force_hc on
27.6 A real example: the Consumption Based Asset Pricing Model

To illustrate gretl’s implementation of GMM, we will replicate the example given in chapter 3 of
Hall (2005). The model to estimate is a classic application of GMM, and provides an example of a
case when orthogonality conditions do not stem from statistical considerations, but rather from
economic theory.
A rational individual who must allocate his income between consumption and investment in a
financial asset must in fact choose the consumption path of his whole lifetime, since investment
translates into future consumption. It can be shown that an optimal consumption path should
satisfy the following condition:
pU ′ (ct ) = δk E rt+k U ′ (ct+k )|Ft ,

(27.13)
where p is the asset price, U(·) is the individual’s utility function, δ is the individual’s subjective
discount rate and rt+k is the asset’s rate of return between time t and time t + k. Ft is the infor-
mation set at time t; equation (27.13) says that the utility “lost” at time t by purchasing the asset
instead of consumption goods must be matched by a corresponding increase in the (discounted)
future utility of the consumption financed by the asset’s return. Since the future is uncertain, the
individual considers his expectation, conditional on what is known at the time when the choice is
made.
We have said nothing about the nature of the asset, so equation (27.13) should hold whatever asset
we consider; hence, it is possible to build a system of equations like (27.13) for each asset whose
price we observe.
If we are willing to believe that
• the economy as a whole can be represented as a single gigantic and immortal representative
individual, and
x α −1
• the function U(x) = α is a faithful representation of the individual’s preferences,
then, setting k = 1, equation (27.13) implies the following for any asset j:
rj,t+1 Ct+1 α−1
" #
E δ Ft = 1, (27.14)
pj,t Ct
where Ct is aggregate consumption and α and δ are the risk aversion and discount rate of the
representative individual. In this case, it is easy to see that the “deep” parameters α and δ can be
estimated via GMM by using
rj,t+1 Ct+1 α−1

et = δ −1
pj,t Ct
as the moment condition, while any variable known at time t may serve as an instrument.
In the example code given in 27.3, we replicate selected portions of table 3.7 in Hall (2005). The
variable consrat is defined as the ratio of monthly consecutive real per capita consumption (ser-
vices and nondurables) for the US, and ewr is the return–price ratio of a fictitious asset constructed
by averaging all the stocks in the NYSE. The instrument set contains the constant and two lags of
each variable.
The command set force_hc on on the second line of the script has the sole purpose of replicating
the given example: as mentioned above, it forces gretl to compute the long-run variance of the
orthogonality conditions according to equation (27.11) rather than (27.12).
We run gmm four times: one-step estimation for each of two initial weights matrices, then iterative
estimation starting from each set of initial weights. Since the number of orthogonality conditions
(5) is greater than the number of estimated parameters (2), the choice of initial weights should
make a difference, and indeed we see fairly substantial differences between the one-step estimates
(Models 1 and 2). On the other hand, iteration reduces these differences almost to the vanishing
point (Models 3 and 4).
Part of the output is given in 27.4. It should be noted that the J test leads to a rejection of the
hypothesis of correct specification. This is perhaps not surprising given the heroic assumptions
required to move from the microeconomic principle in equation (27.13) to the aggregate system
that is actually estimated.
Listing 27.3: Estimation of the Consumption Based Asset Pricing Model [Download ▼]
open hall.gdt
set force_hc on
scalar alpha = 0.5

scalar delta = 0.5
series e = 0
list inst = const consrat(-1) consrat(-2) ewr(-1) ewr(-2)
matrix V0 = 100000*I(nelem(inst))
matrix Z = { inst }
matrix V1 = $nobs*inv(Z’Z)
gmm e = delta*ewr*consrat^(alpha-1) - 1
orthog e ; inst
weights V0
params alpha delta
end gmm
orthog e ; inst
weights V1
params alpha delta
end gmm
orthog e ; inst
weights V0
params alpha delta
end gmm --iterate
orthog e ; inst
weights V1
params alpha delta
end gmm --iterate
Listing 27.4: Estimation of the Consumption Based Asset Pricing Model – output
Model 1: 1-step GMM estimates using the 465 observations 1959:04-1997:12

e = d*ewr*consrat^(alpha-1) - 1
alpha -3.14475 6.84439 -0.459 0.64590

d 0.999215 0.0121044 82.549 <0.00001 ***
Model 2: 1-step GMM estimates using the 465 observations 1959:04-1997:12

alpha 0.398194 2.26359 0.176 0.86036

d 0.993180 0.00439367 226.048 <0.00001 ***
Model 3: Iterated GMM estimates using the 465 observations 1959:04-1997:12

alpha -0.344325 2.21458 -0.155 0.87644

d 0.991566 0.00423620 234.070 <0.00001 ***

J test: Chi-square(3) = 11.8103 (p-value 0.0081)
Model 4: Iterated GMM estimates using the 465 observations 1959:04-1997:12

alpha -0.344315 2.21359 -0.156 0.87639

d 0.991566 0.00423469 234.153 <0.00001 ***

J test: Chi-square(3) = 11.8103 (p-value 0.0081)
27.7 Caveats
A few words of warning are in order: despite its ingenuity, GMM is possibly the most fragile esti-
mation method in econometrics. The number of non-obvious choices one has to make when using
GMM is large, and in finite samples each of these can have dramatic consequences for the eventual
output. Some of the factors that may affect the results are:
1. Orthogonality conditions can be written in more than one way: for example, if E(xt − µ) = 0,
then E(xt /µ − 1) = 0 holds too. It is possible that a different specification of the moment
conditions leads to different results.
2. As with all other numerical optimization algorithms, weird things may happen when the ob-
jective function is nearly flat in some directions or has multiple minima. BFGS is usually quite
good, but there is no guarantee that it always delivers a sensible solution, if one at all.
3. The 1-step and, to a lesser extent, the 2-step estimators may be sensitive to apparently trivial
details, like the re-scaling of the instruments. Different choices for the initial weights matrix
can also have noticeable consequences.
4. With time-series data, there is no hard rule on the appropriate number of lags to use when
computing the long-run covariance matrix (see section 27.5). Our advice is to go by trial and
error, since results may be greatly influenced by a poor choice.
One of the consequences of this state of things is that replicating well-known published studies
may be extremely difficult. Any non-trivial result is virtually impossible to reproduce unless all
details of the estimation procedure are carefully recorded.
Chapter 28
Model selection criteria
28.1 Introduction
In some contexts the econometrician chooses between alternative models based on a formal hy-
pothesis test. For example, one might choose a more general model over a more restricted one if
the restriction in question can be formulated as a testable null hypothesis, and the null is rejected
on an appropriate test.
In other contexts one sometimes seeks a criterion for model selection that somehow measures the
balance between goodness of fit or likelihood, on the one hand, and parsimony on the other. The
balancing is necessary because the addition of extra variables to a model cannot reduce the degree
of fit or likelihood, and is very likely to increase it somewhat even if the additional variables are
not truly relevant to the data-generating process.
The best known such criterion, for linear models estimated via least squares, is the adjusted R 2 ,
SSR/(n − k)
R̄ 2 = 1 −
TSS/(n − 1)
where n is the number of observations in the sample, k denotes the number of parameters esti-
mated, and SSR and TSS denote the sum of squared residuals and the total sum of squares for
the dependent variable, respectively. Compared to the ordinary coefficient of determination or
unadjusted R 2 ,
SSR
R2 = 1 −
TSS
the “adjusted” calculation penalizes the inclusion of additional parameters, other things equal.
28.2 Information criteria

A more general criterion in a similar spirit is Akaike’s (1974) “Information Criterion” (AIC). The
original formulation of this measure is
AIC = −2ℓ(θ̂) + 2k (28.1)
where ℓ(θ̂) represents the maximum loglikelihood as a function of the vector of parameter esti-
mates, θ̂, and k (as above) denotes the number of “independently adjusted parameters within the
model.” In this formulation, with AIC negatively related to the likelihood and positively related to
the number of parameters, the researcher seeks the minimum AIC.
The AIC can be confusing, in that several variants of the calculation are “in circulation.” For exam-
ple, Davidson and MacKinnon (2004) present a simplified version,
AIC = ℓ(θ̂) − k
which is just −2 times the original: in this case, obviously, one wants to maximize AIC.
In the case of models estimated by least squares, the loglikelihood can be written as
n n
ℓ(θ̂) = − (1 + log 2π − log n) − log SSR (28.2)
2 2
268
Chapter 28. Model selection criteria 269
Substituting (28.2) into (28.1) we get
AIC = n(1 + log 2π − log n) + n log SSR + 2k
which can also be written as

SSR

AIC = n log + 2k + n(1 + log 2π ) (28.3)
n
Some authors simplify the formula for the case of models estimated via least squares. For instance,
William Greene writes
SSR 2k

AIC = log + (28.4)
n n
This variant can be derived from (28.3) by dividing through by n and subtracting the constant
1 + log 2π . That is, writing AICG for the version given by Greene, we have
1
AICG = AIC − (1 + log 2π )
n
Finally, Ramanathan gives a further variant:
SSR 2k/n

AICR = e
n
which is the exponential of the one given by Greene.

Gretl began by using the Ramanathan variant, but since version 1.3.1 the program has used the
original Akaike formula (28.1), and more specifically (28.3) for models estimated via least squares.
Although the Akaike criterion is designed to favor parsimony, arguably it does not go far enough
in that direction. For instance, if we have two nested models with k − 1 and k parameters respec-
tively, and if the null hypothesis that parameter k equals 0 is true, in large samples the AIC will
nonetheless tend to select the less parsimonious model about 16 percent of the time (see Davidson
and MacKinnon, 2004, chapter 15).
An alternative to the AIC which avoids this problem is the Schwarz (1978) “Bayesian information
criterion” (BIC). The BIC can be written (in line with Akaike’s formulation of the AIC) as
BIC = −2ℓ(θ̂) + k log n
The multiplication of k by log n in the BIC means that the penalty for adding extra parameters
grows with the sample size. This ensures that, asymptotically, one will not select a larger model
over a correctly specified parsimonious model.
A further alternative to AIC, which again tends to select more parsimonious models than AIC,
is the Hannan–Quinn criterion or HQC (Hannan and Quinn, 1979). Written consistently with the
formulations above, this is
HQC = −2ℓ(θ̂) + 2k log log n
The Hannan–Quinn calculation is based on the law of the iterated logarithm (note that the last term
is the log of the log of the sample size). The authors argue that their procedure provides a “strongly
consistent estimation procedure for the order of an autoregression”, and that “compared to other
strongly consistent procedures this procedure will underestimate the order to a lesser degree.”
Gretl reports the AIC, BIC and HQC (calculated as explained above) for most sorts of models. The
key point in interpreting these values is to know whether they are calculated such that smaller
values are better, or such that larger values are better. In gretl, smaller values are better: one wants
to minimize the chosen criterion.
Chapter 29
Degrees of freedom correction
29.1 Introduction
This chapter gives a brief account of the issue of correction for degrees of freedom in the context
of econometric modeling, leading up to a discussion of the policies adopted in gretl in this regard.
We also explain how to supplement the results produced automatically by gretl if you want to apply
such a correction where gretl does not, or vice versa.
The first few sections are quite basic; experts are invited to skip to section 29.5.
29.2 Back to basics

It’s well known that given a sample, {xi }, of size n from a normally distributed population, the
Maximum Likelihood (ML) estimator of the population variance, σ 2 , is
n
1 X
σ̂ 2 = (xi − x̄)2 (29.1)
n i=1
Pn
where x̄ is the sample mean, n−1 i=1 xi . It’s also well known that σ̂ 2 , while it is a consistent
estimator, is biased, and it is commonly replaced by the “sample variance”, namely,
n
1 X
s2 = (xi − x̄)2 (29.2)
n − 1 i=1
The intuition behind the bias in (29.1) is straightforward. First, the quantity we seek to estimate is
defined as h i
σ 2 = E (xi − µ)2
where µ = E(x). It is clear that if µ were observable, a perfectly good estimator would be
n
1 X
σ̃ 2 = (xi − µ)2 .
n i=1
But this is not a practical option: µ is generally unobservable. We therefore substitute x̄ for the
unknown µ. It is easily shown that x̄ is the least-squares estimator of µ, and also (assuming
normality) the ML estimator. It is unbiased, but is of course subject to sampling error; in any given
sample it is highly unlikely that x̄ = µ. Given that x̄ is the least-squares estimator, the sum of
squared deviations of the xi from any value other than x̄ must be greater than the summation in
(29.1). But since µ is almost certainly not equal to x̄, the sum of squared deviations of the xi from
µ will surely be greater than the sum of squared deviations in (29.1). It follows that the expected
value of σ̂ 2 falls short of the population variance.
The proof that s 2 is indeed the unbiased estimator can be found in any good statistics textbook,
where we also learn that the magnitude n − 1 in (29.2) can be brought under a general description
as the “degrees of freedom” of the calculation at hand. (Given x̄, the n sample values provide only
n − 1 items of information since the nth value can always be deduced via the formula for x̄.)
270
Chapter 29. Degrees of freedom correction 271
29.3 Application to OLS regression

The argument above carries over into the usual calculation of standard errors in the context of OLS
regression as applied to the linear model y = Xβ + u. If the disturbances, u, are assumed to be
independently and identically distributed (IID), then the variance of the OLS estimator, β̂, is given
by
Var β̂ = σ 2 (X ′ X)−1
where σ 2 is the variance of the error term and X is an n × k matrix of regressors. But how should
the unknown σ 2 be estimated? The ML estimator is
n
1 X 2
σ̂ 2 = û (29.3)
n i=1 i
where the û2i are squared residuals, ui = yi − Xi β. But this estimator is biased and we typically use
the unbiased counterpart
n
1 X 2
s2 = û (29.4)
n − k i=1 i
in which n − k is the number of degrees of freedom given n residuals from a regression where k
parameters are estimated.
The standard estimator of the variance of β̂ in the context of OLS is then V = s 2 (X ′ X)−1 . And the
standard errors of the individual parameter estimates, sβ̂i , being the square roots of the diagonal
elements of V , inherit a degrees of freedom correction from the estimator s 2 .
Going one step further, consider hypothesis testing in the context of OLS. Since the variance of
β̂ is unknown and must itself be estimated, the sampling distribution of the OLS coefficients is
not, strictly speaking, normal. But if the disturbances are normally distributed (besides being IID)
then, even in small samples, the parameter estimates will follow a distribution that can be specified
exactly, namely the Student t distribution with degrees of freedom equal to the value given above,
ν = n − k.
That is, besides using a df correction in computing the standard errors of the OLS coefficients,
one uses the same ν in selecting the particular distribution to which the “t-ratio”, (β̂i − β0 )/sβ̂i ,
should be referred in order to determine the marginal significance level or p-value for the null
hypothesis that βi = β0 . This is the payoff to df correction: we get test statistics that follow a known
distribution in small samples. (In big enough samples the point is moot, since the quantitative
distinction between σ̂ 2 and s 2 vanishes.)
So far, so good. Everyone expects df correction in plain OLS standard errors just as we expect
division by n − 1 in the sample variance. And users of econometric software expect that the p-
values reported for OLS coefficients will be based on the t(ν) distribution — although they are
not always sufficiently aware that the validity of such statistics in small samples depends on the
assumption of normally distributed errors.
29.4 Beyond OLS

The situation is different when we move beyond estimation of the classical linear model via OLS. We
may wish to estimate nonlinear models (sometimes by least squares), and many models of interest
to econometricians are commonly estimated via maximization of a likelihood function, or via the
generalized method of moments (GMM).
In such cases we do not, in general, have exact small-sample results to rely upon; in particular,
we cannot assume that coefficient estimates follow the t distribution. Rather, we typically appeal
to asymptotic results in statistical theory. We seek consistent estimators which, although they
may be biased, nonetheless converge in probability to the corresponding parameter values as the
sample size goes to infinity. Under the right conditions, laws of large numbers and central limit
theorems entitle us to expect that test statistics will converge to the normal distribution, or the χ 2
distribution for multivariate tests, given big enough samples.
To “correct” or not?
The question arises, should we or should we not apply a df “correction” in reporting variance
estimates and standard errors for models that depart from the classical linear specification?
The argument against applying df adjustment is that it lacks a theoretical basis: it does not pro-
duce test statistics that follow any known distribution in small samples. In addition, if parameter
estimates are obtained via ML, it makes sense to report ML estimates of variances even if these
are biased, since it is the ML quantities that are used in computing the criterion function and in
forming likelihood-ratio tests.
On the other hand, pragmatic arguments for doing df adjustment are (a) that it makes for closer
comparability between regular OLS estimates and nonlinear ones, and (b) that it provides a “pinch
of salt” in relation to small-sample results — that is, it inflates standard errors, confidence intervals
and p-values somewhat—even if it lacks rigorous justification.
Note that even for fairly small samples, the difference between the biased and unbiased estimators
30 2
in equations (29.1) and (29.2) above will be small. For example, if n = 30 then s 2 = 29 σ̂ . In
econometric modelling proper, however, the difference can be quite substantial. If n = 50 and
k = 10, the s 2 defined in (29.4) will be 50/40 = 1.25 as large as the σ̂ 2 in (29.3), and standard errors
will be about 12 percent larger.1 One can make a case for inflating the standard errors obtained
via nonlinear estimators as a precaution against taking results to be “more precise than they really
are”.
In rejoinder to the last point, one might equally say that savvy econometricians should know to
apply a discount factor (albeit an imprecise one) to small-sample estimates outside of the classical,
normal linear model—or even that they should distrust such results and insist on large samples
before making inferences. This line of thinking suggests that test statistics such as z = β̂i /σ̂β̂i
should be referred to the distribution to which they conform asymptotically — in this case N(0, 1)
for H0 : βi = 0—if and only if the conditions for appealing to asymptotic results can be considered
as met. From this point of view df adjustment may be seen as providing a false sense of security.
29.5 Consistency and awkward cases

Consistency (in the ordinary sense of uniformity of treatment) is a bugbear when dealing with
this issue. To give a simple example, suppose an econometrics program follows the policy of
applying df correction for OLS estimation but not for ML estimation. One is, of course, free to
estimate the classical, normal linear model via ML, in which case β̂ should be numerically identical
to that obtained via OLS. But the user of the software will obtain two different sets of standard
errors depending on the estimation method. Admittedly, this example is not very troublesome;
presumably one would apply ML to the classical linear model only to make a pedagogical point.
Here is a more awkward case. An unrestricted vector autoregression (VAR) is a system of equations,
but the ML estimate of this system, given normal errors, is equivalent to equation-by-equation OLS.
Should df correction be applied to VARs? Consistency with OLS argues Yes. However, a popular
extension of the VAR methodology is the vector error-correction model (VECM). VECMs are closely
related to VARs and one might well be interested in making comparisons across the two, but a
VECM is a nonlinear system and the cointegrating vectors that lie at the heart of this model must
be estimated via Maximum Likelihood. So perhaps VAR results should not be df adjusted, for
comparability with VECMs.
1 A fairly typical situation in time-series macroeconometrics would be have between 100 and 200 quarterly observa-
tions, and to be estimating up to maybe 30 parameters including lags. In this case df correction would make a difference
to standard errors on the order of 10 percent.
Another “grey area” is the class of Feasible Generalized Least Squares (FGLS) estimators — for exam-
ple, weighted least squares following the estimation of a skedastic function, or estimators designed
to handle first-order autocorrelation, such as Cochrane–Orcutt. These depart from the classical lin-
ear model, and the theoreretical basis for inference in such models is asymptotic, yet according to
econometric tradition standard errors are generally df adjusted.
Yet another awkward case: “robust” (heteroskedasticity- and/or autocorrelation-consistent) stan-
dard errors in the context of OLS. Such estimators are justified by asymptotic arguments and in
general we cannot determine their small-sample distributions. That would argue for referring the
associated test statistics to the normal distribution. But comparability with classical standard
errors pulls in the other direction. Suppose in a particular case a robust estimator produces a
standard error that is numerically indistinguishable from the classical one: if the former is referred
to the normal distribution and the latter to the t distribution, switching to robust standard errors
will give a smaller p-value for the coefficient in question, making it appear “more significant,” and
arguably this is misleading.
29.6 What gretl does

First of all, the third column in gretl model output — following “coefficient” and “std. error” — is
labeled either “t-ratio” or “z.” This is your signal: “t-ratio” indicates that the estimated standard
error employs a degrees of freedom adjustment and the reported p-value is obtained from the
Student t distribution, while “z” indicates that no such adjustment is applied and the p-value
comes from the standard normal distribution.
If you see that gretl is applying a df adjustment but you don’t want this, the first point to check is
whether you can switch to the asymptotic variant by using an option flag or other command.
• The ols and tsls commands support a --no-df-corr option to suppress degrees of freedom
adjustment. In the case of Two-Stage Least Squares it’s certainly arguable that df correction
should not be performed by default, however gretl does this, largely for comparability with
other software (for example Stata’s ivreg command). But you can override the default if you
wish.
• The estimate command, for systems of equations, also supports the --no-df-corr option
when the specified estimation method is OLS or TSLS. (For other estimators supported by
gretl’s system command no df adjustment is applied by default.)
• By default gretl uses the t distribution for statistics based on robust standard errors under
OLS. However, users can specify that p-values be calculated using the standard normal distri-
bution whenever the --robust option is passed to an estimation command, by means of the
following “set” command
set robust_z on
If these possibilities do not apply, it is fairly straightforward to “purge” regression results of df

correction, as illustrated in the following script fragment. We assume that a model has just been
estimated, so that the model-related accessors ($stderr, $coeff and so on) are available.
matrix se = $stderr * sqrt($df/$T)

matrix zscore = $coeff ./ se
matrix pv = 2 * pvalue(z, abs(zscore))
matrix M = $coeff ~ se ~ zscore ~ pv
cnameset(M, "coeff stderr z p-value")
print M
This will print the original coefficient estimates along with asymptotic standard errors and the
associated z-scores and (two-sided) normal p-values. The converse case is left as an exercise for
the reader.
VARs
As mentioned above, Vector Autoregressions constitute a particularly awkward case, with consid-
erations of consistency of treatment pulling in two opposite directions. For that reason gretl has
adopted an “agnostic” policy in relation to such systems. We do not offer a $vcv accessor, but
instead accessors named $xtxinv (the matrix X ′ X −1 for the system as a whole) and $sigma (an
estimate of the cross-equation variance–covariance matrix, Σ). It’s then up to the user to build an
estimate of the variance matrix of the parameter estimates — call it V — should that be required.
Note that $sigma gives the Maximum Likelihood Estimator (without a degrees of freedom adjust-
ment) so if you do
matrix Vml = $sigma ** $xtxinv
(where “**” represents Kronecker product) you obtain the MLE of the variance matrix of the param-
eter estimates. But if you want the unbiased estimator you can do
matrix S = $sigma * $T/($T-$ncoeff)

matrix Vu = S ** $xtxinv
to employ a suitably inflated variant of the Σ estimate. (For VARs, and also VECMs, $ncoeff gives
the number of coefficients per equation.)
The second variant above is such that the vector of standard errors produced by
matrix SE = sqrt(diag(Vu))
agrees with the standard errors printed as part of the per-equation VAR output.
A fuller example of usage of the $xtxinv accessor is given in Listing 29.1: this shows how one can
replicate the F -tests for Granger causality that are displayed by default by the var command, with
the refinement that, depending on the setting of the USE_F flag, these tests can be done using a
small sample correction as in gretl’s output or in asymptotic (χ 2 ) form.
Vector Error Correction Models are more complex than VARs in this respect, since we employ Jo-
hansen’s variance estimator for the “β” terms. This means for example that the $xtxinv accessor
treats each estimated error correction (EC) term as one regressor on its own, such that the sam-
pling uncertainty of the loading coefficients is thereby addressed (after Kronecker-multiplying with
$sigma as before) . The “internals” of the EC terms are of course made up of the integrated (levels)
variables, and the special $jvbeta accessor is responsible for the variance of the cointegration
coefficients, where degrees-of-freedom corrections are not available.
But as soon as the loading coefficients attached to the EC terms are restricted, there is no common
set of regressors with freely varying coefficients in the VECM system anymore, and therefore in
these cases the formulas above are misleading. The $xtxinv accessor can still be retrieved (because
it does not involve the coefficients), but in the restricted α case it should no longer be used as shown
above. The notion of system degrees of freedom then also becomes fuzzier since the number of
regressors can vary across equations.
Listing 29.1: Computing statistics to test for Granger causality [Download ▼]
open denmark.gdt
list LST = LRM LRY IBO IDE
scalar p = 2 # lags in VAR
scalar USE_F = 1 # small sample correction?
var p LST --quiet
k = nelem(LST)
matrix theta = vec($coeff)
matrix V = $sigma ** $xtxinv
if USE_F
scalar df = $T - $ncoeff
V *= $T/df
endif
matrix GC = zeros(k, k)
cnameset(GC, LST)
rnameset(GC, LST)
matrix idx = seq(1,p) + 1

loop i = 1..k
loop j = 1..k
GC[i,j] = qform(theta[idx]’, invpd(V[idx,idx]))
idx += (j==k)? p+1 : p
endloop
endloop
if USE_F
GC /= p
matrix pvals = pvalue(F, p, df, GC)
else
matrix pvals = pvalue(X, p, GC)
endif
cnameset(pvals, LST)
rnameset(pvals, LST)
print GC pvals
Chapter 30
Time series filters
In addition to the usual application of lags and differences, gretl provides fractional differencing
and various filters commonly used in macroeconomics for trend-cycle decomposition: notably the
Hodrick–Prescott filter (Hodrick and Prescott, 1997), the Baxter–King bandpass filter (Baxter and
King, 1999) and the Butterworth filter (Butterworth, 1930).
30.1 Fractional differencing

The concept of differencing a time series d times is pretty obvious when d is an integer; it may seem
odd when d is fractional. However, this idea has a well-defined mathematical content: consider the
function
f (z) = (1 − z)−d ,
where z and d are real numbers. By taking a Taylor series expansion around z = 0, we see that
d(d + 1) 2
f (z) = 1 + dz + z + ···
2
or, more compactly,
∞
X
f (z) = 1 + ψi zi
i=1
with Qk
i=1 (d + i − 1) d+k−1
ψk = = ψk−1
k! k
The same expansion can be used with the lag operator, so that if we defined
Yt = (1 − L)0.5 Xt
this could be considered shorthand for
Yt = Xt − 0.5Xt−1 − 0.125Xt−2 − 0.0625Xt−3 − · · ·
In gretl this transformation can be accomplished by the syntax
Y = fracdiff(X, 0.5)
30.2 The Hodrick–Prescott filter

This filter is accessed using the hpfilt() function, which takes as its first argument the name of
the variable to be processed. (Further optional arguments are explained below.)
A time series yt may be decomposed into a trend or growth component gt and a cyclical component
ct .
yt = gt + ct , t = 1, 2, . . . , T
276
Chapter 30. Time series filters 277
The Hodrick–Prescott filter effects such a decomposition by minimizing the following:
T TX
−1
X 2
(yt − gt )2 + λ (gt+1 − gt ) − (gt − gt−1 ) .
t=1 t=2
The first term above is the sum of squared cyclical components ct = yt − gt . The second term is a
multiple λ of the sum of squares of the trend component’s second differences. This second term
penalizes variations in the growth rate of the trend component: the larger the value of λ, the higher
is the penalty and hence the smoother the trend series.
Note that the hpfilt function in gretl produces the cyclical component, ct , of the original series.
If you want the smoothed trend you can subtract the cycle from the original:
ct = hpfilt(yt)
gt = yt - ct
Hodrick and Prescott (1997) suggest that a value of λ = 1600 is reasonable for quarterly data. The
default value in gretl is 100 times the square of the data frequency (which, of course, yields 1600
for quarterly data). The value can be adjusted using an optional second argument to hpfilt(), as
in
ct = hpfilt(yt, 1300)
As of version 2018a, the hpfilt() function accepts a third, optional Boolean argument. If set to
non-zero, what is performed is the so-called one-sided version of the filter. See Section 36.11 for
further details.
30.3 The Baxter and King filter

This filter is accessed using the bkfilt() function, which again takes the name of the variable to
be processed as its first argument. The operation of the filter can be controlled via three further
optional argument.
Consider the spectral representation of a time series yt :
Zπ
yt = eiω dZ(ω)
−π
To extract the component of yt that lies between the frequencies ω and ω one could apply a
bandpass filter: Zπ
ct∗ = F ∗ (ω)eiω dZ(ω)
−π
∗
where F (ω) = 1 for ω < |ω| < ω and 0 elsewhere. This would imply, in the time domain,
applying to the series a filter with an infinite number of coefficients, which is undesirable. The
Baxter and King bandpass filter applies to yt a finite polynomial in the lag operator A(L):
ct = A(L)yt
where A(L) is defined as

k
X
A(L) = ai L i
i=−k
The coefficients ai are chosen such that F (ω) = A(eiω )A(e−iω ) is the best approximation to F ∗ (ω)
for a given k. Clearly, the higher k the better the approximation is, but since 2k observations have
to be discarded, a compromise is usually sought. Moreover, the filter has also other appealing
theoretical properties, among which the property that A(1) = 0, so a series with a single unit root
is made stationary by application of the filter.
In practice, the filter is normally used with monthly or quarterly data to extract the “business
cycle” component, namely the component between 6 and 36 quarters. Usual choices for k are 8 or
12 (maybe higher for monthly series). The default values for the frequency bounds are 8 and 32,
and the default value for the approximation order, k, is 8. You can adjust these values using the
full form of bkfilt(), which is
bkfilt(seriesname, f1, f2, k)
where f1 and f2 represent the lower and upper frequency bounds respectively.
30.4 The Butterworth filter

The Butterworth filter (Butterworth, 1930) is an approximation to an “ideal” square-wave filter.
The ideal filter divides the spectrum of a time series into a pass-band (frequencies less than some
chosen ω⋆ for a low-pass filter, or frequencies greater than ω⋆ for high-pass) and a stop-band; the
gain is 1 for the pass-band and 0 for the stop-band. The ideal filter is unattainable in practice since
it would require an infinite number of coefficients, but the Butterworth filter offers a remarkably
good approximation. This filter is derived and persuasively advocated by Pollock (2000).
For data y, the filtered sequence x is given by
x = y − λΣQ(M + λQ′ ΣQ)−1 Q′ y (30.1)
where
T −2 T
Σ = {2IT − (LT + L−1
T )} and M = {2IT + (LT + L−1
T )}
IT denotes the identity matrix of order T ; LT = [e1 , e2 , . . . , eT −1 , 0] is the finite-sample matrix

version of the lag operator; and Q is defined such that pre-multiplication of a T -vector of data by
Q′ of order (T − 2) × T produces the second differences of the data. The matrix product
T
Q′ ΣQ = {2IT − (LT + L−1
T )}
is a Toeplitz matrix.
The behavior of the Butterworth filter is governed by two parameters: the frequency cutoff ω⋆ and
an integer order, n, which determines the number of coefficients used. The λ that appears in (30.1)
is tan(ω⋆ /2)−2n . Higher values of n produce a better approximation to the ideal filter in principle
(i.e. a sharper cut between the pass-band and the stop-band) but there is a downside: with a greater
number of coefficients numerical instability may be an issue, and the influence of the initial values
in the sample may be exaggerated.
In gretl the Butterworth filter is implemented by the bwfilt() function,1 which takes three argu-
ments: the series to filter, the order n and the frequency cutoff, ω⋆ , expressed in degrees. The
cutoff value must be greater than 0 and less than 180. This function operates as a low-pass filter;
for the high-pass variant, subtract the filtered series from the original, as in
series bwcycle = y - bwfilt(y, 8, 67)
Pollock recommends that the parameters of the Butterworth filter be tuned to the data: one should
examine the periodogram of the series in question (possibly after removal of a polynomial trend)
in search of a “dead spot” of low power between the frequencies one wishes to exclude and the
frequencies one wishes to retain. If ω⋆ is placed in such a dead spot then the job of separation
can be done with a relatively small n, hence avoiding numerical problems. By way of illustration,
consider the periodogram for quarterly observations on new cars sales in the US,2 1975:1 to 1990:4
(the upper panel in Figure 30.1).
1 The code for this filter is based on D. S. G. Pollock’s programs IDEOLOG and DETREND. The Pascal source code for
periods
64.0 10.7 5.8 4.0 3.0 2.5 2.1
300000
250000
200000
150000
100000
50000
0
0 20 40 60 80 100 120 140 160 180
degrees
3400
QNC (original data)
3200 QNC (smoothed) 1
3000
0.8
2800
0.6
2600
2400
0.4
2200 0.2
2000 0
0 π/4 π/2 3π/4 π
1800
1600
1976 1978 1980 1982 1984 1986 1988 1990
Figure 30.1: The Butterworth filter applied
A seasonal pattern is clearly visible in the periodogram, centered at an angle of 90◦ or 4 periods.
If we set ω⋆ = 68◦ (or thereabouts) we should be able to excise the seasonality quite cleanly using
n = 8. The result is shown in the lower panel of the Figure, along with the frequency response or
gain plot for the chosen filter. Note the smooth and reasonably steep drop-off in gain centered on
the nominal cutoff of 68◦ ≈ 3π /8.
The apparatus that supports this sort of analysis in the gretl GUI can be found under the Variable
menu in the main window: the items Periodogram and Filter. In the periodogram dialog box you
have the option of expressing the frequency axis in degrees, which is helpful when selecting a
Butterworth filter; and in the Butterworth filter dialog you have the option of plotting the frequency
response as well as the smoothed series and/or the residual or cycle.
30.5 The discrete Fourier transform

The Fourier transform is not itself a time-series filter, but by providing the bridge between the time
and the frequency domain it is a fundamental building block of many filter internals and deserves
some detailed comments.
The discrete Fourier transform can be best thought of as a linear, invertible transform of a complex
vector. Hence, if x is an n-dimensional vector whose k-th element is xk = ak + ibk , then the output
of the discrete Fourier transform is a vector f = F (x) whose k-th element is
n−1
X
fk = e−iω(j,k) xj
j=0
jk
where ω(j, k) = 2π i n . Since the transformation is invertible, the vector x can be recovered from
the former is available from http://www.le.ac.uk/users/dsgp1 and the C sources for the latter were kindly made
available to us by the author.
2 This is the variable QNC from the Ramanathan data file data9-7.
f via the so-called inverse transform

n−1
1 X iω(j,k)
xk = e fj .
n j=0
The Fourier transform is used in many diverse situations on account of this key property: the
convolution of two vectors can be performed efficiently by multiplying the elements of their Fourier
transforms and inverting the result. If
n
X
zk = xj yk−j ,
j=1
then
F (z) = F (x) ⊙ F (y).
That is, F (z)k = F (x)k F (y)k .
For computing the Fourier transform, gretl uses the external library fftw3: see Frigo and Johnson
(2005). This guarantees extreme speed and accuracy. In fact, the CPU time needed to perform
the transform is O(n log n) for any n. This is why the array of numerical techniques employed in
fftw3 is commonly known as the Fast Fourier Transform.
Gretl provides two matrix functions for performing the Fourier transform and its inverse: fft2 and
ffti.3 For example:
matrix x1 = { 1 ; 2 ; 3 }
# perform the transform
matrix f = fft2(x1)
# perform the inverse transform
matrix x2 = ffti(f)
yields      
1 6 0 1
     
 2 
x1 =  f =
 −1.5 0.866   2 
x2 = 
 

3 −1.5 −0.866 3
Should it be necessary to compute the Fourier transform on several vectors with the same number
of elements, it is numerically more efficient to group them into a matrix rather than invoking fft
for each vector separately.
As an example, consider the multiplication of two polynomials:
a(x) = 1 + 0.5x
b(x) = 1 + 0.3x − 0.8x 2
c(x) = a(x) · b(x) = 1 + 0.8x − 0.65x 2 − 0.4x 3
The coefficients of the polynomial c(x) are the convolution of the coefficients of a(x) and b(x);
the following gretl code fragment illustrates how to compute the coefficients of c(x):
# define the two polynomials

a = { 1, 0.5, 0, 0 }’
b = { 1, 0.3, -0.8, 0 }’
# perform the transforms
3 The same functionality is available via the legacy function fft, that predates gretl’s native support of complex
matrices. It is more limited than fft2, as the input is understood to be real. It returns the real and imaginary parts of the
result in separate columns. The fft function is kept for backward compatibility, but for new scripts it is recommended
to use the newer function fft2 instead. The inverse function ffti supports both representations.
fa = fft2(a)
fb = fft2(b)
# multiply the two transforms element by element
fc = fa .* fb
# compute the coefficients of c via the inverse transform
c = ffti(fc)
Maximum efficiency would have been achieved by grouping a and b into a matrix. The computa-
tional advantage is so little in this case that the exercise is a bit silly, but the following alternative
may be preferable for a large number of rows/columns:
# define the two polynomials

a = { 1 ; 0.5; 0 ; 0 }
b = { 1 ; 0.3 ; -0.8 ; 0 }
# perform the transforms jointly
f = fft2(a ~ b)
# complex-multiply the two transforms
fc = f[,1] .* f[,2]
# compute the coefficients of c via the inverse transform
c = ffti(fc)
Traditionally, the Fourier transform in econometrics has been mostly used in time-series analysis,
the periodogram being the best known example. Listing 30.1 shows how to compute the peri-
odogram of a time series via the fft2 function.
Listing 30.1: Periodogram via the Fourier transform [Download ▼]
set verbose off

nulldata 50
# generate an AR(1) process
series e = normal()
series x = 0
x = 0.9*x(-1) + e
# compute the periodogram
F = fft2({x}) # note that the series is turned into a matrix on the fly
S = abs(F).^2
S = S[2:($nobs/2)+1] / (2*$pi*$nobs)
sfreq = seq(1,($nobs/2))’
omega = sfreq .* (2*$pi/$nobs)
period = $nobs ./ sfreq
omega = omega ~ sfreq ~ period ~ S
# compare the built-in command

pergm x
print omega
Chapter 31
Univariate time series models
31.1 Introduction
Time series models are discussed in this chapter and the next two. Here we concentrate on ARIMA
models, unit root tests, and GARCH. The following chapter deals with VARs, and chapter 33 with
cointegration and error correction.
31.2 ARIMA models

Representation and syntax
The arma command performs estimation of AutoRegressive, Integrated, Moving Average (ARIMA)
models. These are models that can be written in the form
φ(L)yt = θ(L)ϵt (31.1)
where φ(L), and θ(L) are polynomials in the lag operator, L, defined such that Ln xt = xt−n , and
ϵt is a white noise process. The exact content of yt , of the AR polynomial φ(), and of the MA
polynomial θ(), will be explained in the following.
Mean terms
The process yt as written in equation (31.1) has, without further qualifications, mean zero. If the
model is to be applied to real data, it is necessary to include some term to handle the possibility
that yt has non-zero mean. There are two possible ways to represent processes with nonzero
mean: one is to define µt as the unconditional mean of yt , namely the central value of its marginal
distribution. Therefore, the series ỹt = yt − µt has mean 0, and the model (31.1) applies to ỹt . In
practice, assuming that µt is a linear function of some observable variables xt , the model becomes
φ(L)(yt − xt β) = θ(L)ϵt (31.2)
This is sometimes known as a “regression model with ARMA errors”; its structure may be more
apparent if we represent it using two equations:
yt = xt β + u t
φ(L)ut = θ(L)ϵt
The model just presented is also sometimes known as “ARMAX” (ARMA + eXogenous variables). It
seems to us, however, that this label is more appropriately applied to a different model: another
way to include a mean term in (31.1) is to base the representation on the conditional mean of yt ,
that is the central value of the distribution of yt given its own past. Assuming, again, that this can
be represented as a linear combination of some observable variables zt , the model would expand
to
φ(L)yt = zt γ + θ(L)ϵt (31.3)
The formulation (31.3) has the advantage that γ can be immediately interpreted as the vector of
marginal effects of the zt variables on the conditional mean of yt . And by adding lags of zt to
282
Chapter 31. Univariate time series models 283
this specification one can estimate Transfer Function models (which generalize ARMA by adding
the effects of exogenous variable distributed across time).
Gretl provides a way to estimate both forms. Models written as in (31.2) are estimated by maximum
likelihood; models written as in (31.3) are estimated by conditional maximum likelihood. (For more
on these options see the section on “Estimation” below.)
In the special case when xt = zt = 1 (that is, the models include a constant but no exogenous
variables) the two specifications discussed above reduce to
φ(L)(yt − µ) = θ(L)ϵt (31.4)
and
φ(L)yt = α + θ(L)ϵt (31.5)
respectively. These formulations are essentially equivalent, but if they represent one and the same
process µ and α are, fairly obviously, not numerically identical; rather

α = 1 − φ1 − . . . − φp µ
The gretl syntax for estimating (31.4) is simply
arma p q ; y
The AR and MA lag orders, p and q, can be given either as numbers or as pre-defined scalars.
The parameter µ can be dropped if necessary by appending the option --nc (“no constant”) to the
command. If estimation of (31.5) is needed, the switch --conditional must be appended to the
command, as in
arma p q ; y --conditional
Generalizing this principle to the estimation of (31.2) or (31.3), you get that
arma p q ; y const x1 x2
would estimate the following model:

yt − xt β = φ1 yt−1 − xt−1 β + . . . + φp yt−p − xt−p β + ϵt + θ1 ϵt−1 + . . . + θq ϵt−q
where in this instance xt β = β0 + xt,1 β1 + xt,2 β2 . Appending the --conditional switch, as in
arma p q ; y const x1 x2 --conditional
would estimate the following model:
yt = xt γ + φ1 yt−1 + . . . + φp yt−p + ϵt + θ1 ϵt−1 + . . . + θq ϵt−q
Ideally, the issue broached above could be made moot by writing a more general specification that
nests the alternatives; that is
φ(L) yt − xt β = zt γ + θ(L)ϵt ; (31.6)
we would like to generalize the arma command so that the user could specify, for any estimation
method, whether certain exogenous variables should be treated as xt s or zt s, but we’re not yet at
that point (and neither are most other software packages).
Seasonal models
A more flexible lag structure is desirable when analyzing time series that display strong seasonal
patterns. Model (31.1) can be expanded to
φ(L)Φ(Ls )yt = θ(L)Θ(Ls )ϵt . (31.7)
For such cases, a fuller form of the syntax is available, namely,
arma p q ; P Q ; y
where p and q represent the non-seasonal AR and MA orders, and P and Q the seasonal orders. For
example,
arma 1 1 ; 1 1 ; y
would be used to estimate the following model:
(1 − φL)(1 − ΦLs )(yt − µ) = (1 + θL)(1 + ΘLs )ϵt
If yt is a quarterly series (and therefore s = 4), the above equation can be written more explicitly as
yt − µ = φ(yt−1 − µ) + Φ(yt−4 − µ) − (φ · Φ)(yt−5 − µ) + ϵt + θϵt−1 + Θϵt−4 + (θ · Θ)ϵt−5
Such a model is known as a “multiplicative seasonal ARMA model”.
Gaps in the lag structure

The standard way to specify an ARMA model in gretl is via the AR and MA orders, p and q respec-
tively. In this case all lags from 1 to the given order are included. In some cases one may wish to
include only certain specific AR and/or MA lags. This can be done in either of two ways.
• One can construct a matrix containing the desired lags (positive integer values) and supply
the name of this matrix in place of p or q.
• One can give a comma-separated list of lags, enclosed in braces, in place of p or q.
The following code illustrates these options:
matrix pvec = {1,4}

arma pvec 1 ; y
arma {1,4} 1 ; y
Both forms above specify an ARMA model in which AR lags 1 and 4 are used (but not 2 and 3).
This facility is available only for the non-seasonal component of the ARMA specification.
Differencing and ARIMA

The above discussion presupposes that the time series yt has already been subjected to all the
transformations deemed necessary for ensuring stationarity (see also section 31.3). Differencing is
the most common of these transformations, and gretl provides a mechanism to include this step
into the arma command: the syntax
arma p d q ; y
would estimate an ARMA(p, q) model on ∆d yt . It is functionally equivalent to

series tmp = y
loop i=1..d
tmp = diff(tmp)
endloop
arma p q ; tmp
except with regard to forecasting after estimation (see below).

When the series yt is differenced before performing the analysis the model is known as ARIMA (“I”
for Integrated); for this reason, gretl provides the arima command as an alias for arma.
Seasonal differencing is handled similarly, with the syntax
arma p d q ; P D Q ; y
where D is the order for seasonal differencing. Thus, the command
arma 1 0 0 ; 1 1 1 ; y
would produce the same parameter estimates as
series dsy = sdiff(y)

arma 1 0 ; 1 1 ; dsy
where we use the sdiff function to create a seasonal difference (e.g. for quarterly data, yt − yt−4 ).
In specifying an ARIMA model with exogenous regressors we face a choice which relates back to the
discussion of the variant models (31.2) and (31.3) above. If we choose model (31.2), the “regression
model with ARMA errors”, how should this be extended to the case of ARIMA? The issue is whether
or not the differencing that is applied to the dependent variable should also be applied to the
regressors. Consider the simplest case, ARIMA with non-seasonal differencing of order 1. We may
estimate either
φ(L)(1 − L)(yt − Xt β) = θ(L)ϵt (31.8)
or
φ(L) (1 − L)yt − Xt β = θ(L)ϵt (31.9)
The first of these formulations can be described as a regression model with ARIMA errors, while the
second preserves the levels of the X variables. As of gretl version 1.8.6, the default model is (31.8),
in which differencing is applied to both yt and Xt . However, when using the default estimation
method (native exact ML, see below), the option --y-diff-only may be given, in which case gretl
estimates (31.9).1
Estimation
The default estimation method for ARMA models is exact maximum likelihood estimation (under
the assumption that the error term is normally distributed), using a variety of techniques: the main
algorithm for evaluating the log-likelihood is AS197 by Melard (1984). Maximization is performed
via BFGS and the score is approximated numerically. This method produces results that are di-
rectly comparable with many other software packages. The constant, and any exogenous variables,
are treated as in equation (31.2). The covariance matrix for the parameters is computed using a
numerical approximation to the Hessian at convergence.
The alternative method, invoked with the --conditional switch, is conditional maximum likeli-
hood (CML), also known as “conditional sum of squares” (see Hamilton, 1994, p. 132). This method
was exemplified in the script 13.3, and only a brief description will be given here. Given a sample of
size T , the CML method minimizes the sum of squared one-step-ahead prediction errors generated
1 Prior to gretl 1.8.6, the default model was (31.9). We changed this for the sake of consistency with other software.
by the model for the observations t0 , . . . , T . The starting point t0 depends on the orders of the AR
polynomials in the model. The numerical maximization method used is BHHH, and the covariance
matrix is computed using a Gauss–Newton regression.
The CML method is nearly equivalent to maximum likelihood under the hypothesis of normality;
the difference is that the first (t0 − 1) observations are considered fixed and only enter the like-
lihood function as conditioning variables. As a consequence, the two methods are asymptotically
equivalent under standard conditions— except for the fact, discussed above, that our CML imple-
mentation treats the constant and exogenous variables as per equation (31.3).
The two methods can be compared as in the following example
open data10-1
arma 1 1 ; r
arma 1 1 ; r --conditional
which produces the estimates shown in Table 31.1. As you can see, the estimates of φ and θ
are quite similar. The reported constants differ widely, as expected — see the discussion following
equations (31.4) and (31.5). However, dividing the CML constant by 1 − φ we get 7.38, which is not
far from the ML estimate of 6.93.
Table 31.1: ML and CML estimates
Parameter ML CML
µ 6.93042 (0.923882) 1.07322 (0.488661)
φ 0.855360 (0.0511842) 0.852772 (0.0450252)
θ 0.588056 (0.0986096) 0.591838 (0.0456662)
Convergence and initialization

The numerical methods used to maximize the likelihood for ARMA models are not guaranteed
to converge. Whether or not convergence is achieved, and whether or not the true maximum of
the likelihood function is attained, may depend on the starting values for the parameters. Gretl
employs one of the following two initialization mechanisms, depending on the specification of the
model and the estimation method chosen.
1. Estimate a pure AR model by Least Squares (nonlinear least squares if the model requires
it, otherwise OLS). Set the AR parameter values based on this regression and set the MA
parameters to a small positive value (0.0001).
2. The Hannan–Rissanen method: First estimate an autoregressive model by OLS and save the
residuals. Then in a second OLS pass add appropriate lags of the first-round residuals to the
model, to obtain estimates of the MA parameters.
To see the details of the ARMA estimation procedure, add the --verbose option to the command.
This prints a notice of the initialization method used, as well as the parameter values and log-
likelihood at each iteration.
Besides the built-in initialization mechanisms, the user has the option of specifying a set of starting
values manually. This is done via the set command: the first argument should be the keyword
initvals and the second should be the name of a pre-specified matrix containing starting values.
For example
matrix start = { 0, 0.85, 0.34 }

set initvals start
arma 1 1 ; y
The specified matrix should have just as many parameters as the model: in the example above
there are three parameters, since the model implicitly includes a constant. The constant, if present,
is always given first; otherwise the order in which the parameters are expected is the same as the
order of specification in the arma or arima command. In the example the constant is set to zero,
φ1 to 0.85, and θ1 to 0.34.
You can get gretl to revert to automatic initialization via the command set initvals auto.
Two variants of the BFGS algorithm are available in gretl. In general we recommend the default vari-
ant, which is based on an implementation by Nash (1990), but for some problems the alternative,
limited-memory version (L-BFGS-B, see Byrd et al., 1995) may increase the chances of convergence
on the ML solution. This can be selected via the --lbfgs option to the arma command.
Estimation via X-12-ARIMA

As an alternative to estimating ARMA models using “native” code, gretl offers the option of using
the external program X-12-ARIMA. This is the seasonal adjustment software produced and main-
tained by the U.S. Census Bureau; it is used for all official seasonal adjustments at the Bureau. (The
current version X13 can also be used, working as a drop-in replacement.)
Gretl includes a module which interfaces with X-12-ARIMA: it translates arma commands using the
syntax outlined above into a form recognized by X-12-ARIMA, executes the program, and retrieves
the results for viewing and further analysis within gretl. To use this facility you have to install
X-12-ARIMA separately. Packages for both MS Windows and GNU/Linux are available from the gretl
website, http://gretl.sourceforge.net/.
To invoke X-12-ARIMA as the estimation engine, append the flag --x-12-arima, as in
arma p q ; y --x-12-arima
As with native estimation, the default is to use exact ML but there is the option of using conditional
ML with the --conditional flag. However, please note that when X-12-ARIMA is used in conditional
ML mode, the comments above regarding the variant treatments of the mean of the process yt do
not apply. That is, when you use X-12-ARIMA the model that is estimated is (31.2), regardless
of whether estimation is by exact ML or conditional ML. In addition, the treatment of exogenous
regressors in the context of ARIMA differencing is always that shown in equation (31.8).
Forecasting
ARMA models are often used for forecasting purposes. The autoregressive component, in particu-
lar, offers the possibility of forecasting a process “out of sample” over a substantial time horizon.
Gretl supports forecasting on the basis of ARMA models using the method set out by Box and
Jenkins (1976).2 The Box and Jenkins algorithm produces a set of integrated AR coefficients which
take into account any differencing of the dependent variable (seasonal and/or non-seasonal) in the
ARIMA context, thus making it possible to generate a forecast for the level of the original variable.
By contrast, if you first difference a series manually and then apply ARMA to the differenced series,
forecasts will be for the differenced series, not the level. This point is illustrated in Listing 31.1.
The parameter estimates are identical for the two models. The forecasts differ but are mutually
consistent: the variable fcdiff emulates the ARMA forecast (static, one step ahead within the
sample range, and dynamic out of sample).
2 See in particular their “Program 4” on p. 505ff.

Listing 31.1: ARIMA forecasting [Download ▼]
open greene18_2.gdt
# log of quarterly U.S. nominal GNP, 1950:1 to 1983:4
series y = log(Y)
# and its first difference
series dy = diff(y)
# reserve 2 years for out-of-sample forecast
smpl ; 1981:4
# Estimate using ARIMA
arima 1 1 1 ; y
# forecast over full period
smpl --full
fcast fc1
# Return to sub-sample and run ARMA on the first difference of y
smpl ; 1981:4
arma 1 1 ; dy
smpl --full
fcast fc2
series fcdiff = (t<=1982:1)? (fc1 - y(-1)) : (fc1 - fc1(-1))
# compare the forecasts over the later period
smpl 1981:1 1983:4
print y fc1 fc2 fcdiff --byobs
The output from the last command is:

y fc1 fc2 fcdiff
1981:1 7.964086 7.940930 0.02668 0.02668
1981:2 7.978654 7.997576 0.03349 0.03349
1981:3 8.009463 7.997503 0.01885 0.01885
1981:4 8.015625 8.033695 0.02423 0.02423
1982:1 8.014997 8.029698 0.01407 0.01407
1982:2 8.026562 8.046037 0.01634 0.01634
1982:3 8.032717 8.063636 0.01760 0.01760
1982:4 8.042249 8.081935 0.01830 0.01830
1983:1 8.062685 8.100623 0.01869 0.01869
1983:2 8.091627 8.119528 0.01891 0.01891
1983:3 8.115700 8.138554 0.01903 0.01903
1983:4 8.140811 8.157646 0.01909 0.01909
31.3 Unit root tests

The ADF test
The Augmented Dickey–Fuller (ADF) test is, as implemented in gretl, the t-statistic on ϕ in the
following regression:
p
X
∆yt = µt + ϕyt−1 + γi ∆yt−i + ϵt . (31.10)
i=1
This test statistic is probably the best-known and most widely used unit root test. It is a one-sided
test whose null hypothesis is ϕ = 0 versus the alternative ϕ < 0 (and hence large negative values
of the test statistic lead to the rejection of the null). Under the null, yt must be differenced at least
once to achieve stationarity; under the alternative, yt is already stationary and no differencing is
required.
One peculiar aspect of this test is that its limit distribution is non-standard under the null hy-
pothesis: moreover, the shape of the distribution, and consequently the critical values for the test,
depends on the form of the µt term. A full analysis of the various cases is inappropriate here:
Hamilton (1994) contains an excellent discussion, but any recent time series textbook covers this
topic. Suffice it to say that gretl allows the user to choose the specification for µt among four
different alternatives:
µt command option
0 --nc
µ0 --c
µ0 + µ1 t --ct
2
µ0 + µ1 t + µ1 t --ctt
These option flags are not mutually exclusive; when they are used together the statistic will be
reported separately for each selected case. By default, gretl uses the combination --c --ct. For
each case, approximate p-values are calculated by means of the algorithm developed in MacKinnon
(1996).
The gretl command used to perform the test is adf; for example
adf 4 x1
would compute the test statistic as the t-statistic for ϕ in equation 31.10 with p = 4 in the two
cases µt = µ0 and µt = µ0 + µ1 t.
The number of lags (p in equation 31.10) should be chosen as to ensure that (31.10) is a parametriza-
tion flexible enough to represent adequately the short-run persistence of ∆yt . Setting p too low
results in size distortions in the test, whereas setting p too high leads to low power. As a conve-
nience to the user, the parameter p can be automatically determined. Setting p to a negative num-
ber triggers a sequential procedure that starts with p lags and decrements p until the t-statistic for
the parameter γp exceeds 1.645 in absolute value.
The ADF-GLS test

Elliott, Rothenberg and Stock (1996) proposed a variant of the ADF test which involves an alterna-
tive method of handling the parameters pertaining to the deterministic term µt : these are estimated
first via Generalized Least Squares, and in a second stage an ADF regression is performed using the
GLS residuals. This variant offers greater power than the regular ADF test for the cases µt = µ0 and
µt = µ0 + µ1 t.
The ADF-GLS test is available in gretl via the --gls option to the adf command. When this option
is selected the --nc and --ctt options become unavailable, and only one case can be selected at
a time; by default the constant-only model is used but a trend can be added using the --ct flag.
When a trend is present in this test MacKinnon-type p-values are not available; instead we show
critical values from Table 1 in Elliott et al. (1996).
The KPSS test

The KPSS test (Kwiatkowski, Phillips, Schmidt and Shin, 1992) is a unit root test in which the null
hypothesis is opposite to that in the ADF test: under the null, the series in question is stationary;
the alternative is that the series is I(1).
The basic intuition behind this test statistic is very simple: if yt can be written as yt = µ + ut ,
where ut is some zero-mean stationary process, then not only does the sample average of the yt s
provide a consistent estimator of µ, but the long-run variance of ut is a well-defined, finite number.
Neither of these properties hold under the alternative.
The test itself is based on the following statistic:
PT 2
i=1 St
η= (31.11)
T 2 σ̄ 2
Pt
where St = s=1 es and σ̄ 2 is an estimate of the long-run variance of et = (yt − ȳ). Under the null,
this statistic has a well-defined (nonstandard) asymptotic distribution, which is free of nuisance
parameters and has been tabulated by simulation. Under the alternative, the statistic diverges.
As a consequence, it is possible to construct a one-sided test based on η, where H0 is rejected if
η is bigger than the appropriate critical value; gretl provides the 90, 95 and 99 percent quantiles.
The critical values are computed via the method presented by Sephton (1995), which offers greater
accuracy than the values tabulated in Kwiatkowski et al. (1992).
Usage example:
kpss m y
where m is an integer representing the bandwidth or window size used in the formula for estimating
the long run variance:
m
|i|
X
σ̄ 2 = 1− γ̂i
i=−m
m+1
The γ̂i terms denote the empirical autocovariances of et from order −m through m. For this
estimator to be consistent, m must be large enough to accommodate the short-run persistence of
et , but not too large compared to the sample size T . If the supplied m is non-positive a default value
1/4
T
is computed, namely the integer part of 4 100 .
The above concept can be generalized to the case where yt is thought to be stationary around a
deterministic trend. In this case, formula (31.11) remains unchanged, but the series et is defined as
the residuals from an OLS regression of yt on a constant and a linear trend. This second form of
the test is obtained by appending the --trend option to the kpss command:
kpss n y --trend
Note that in this case the asymptotic distribution of the test is different and the critical values
reported by gretl differ accordingly.
Panel unit root tests

The most commonly used unit root tests for panel data involve a generalization of the ADF pro-
cedure, in which the joint null hypothesis is that a given times series is non-stationary for all
individuals in the panel.
In this context the ADF regression (31.10) can be rewritten as
pi
X
∆yit = µit + ϕi yi,t−1 + γij ∆yi,t−j + ϵit (31.12)
j=1
The model (31.12) allows for maximal heterogeneity across the individuals in the panel: the param-
eters of the deterministic term, the autoregressive coefficient ϕ, and the lag order p are all specific
to the individual, indexed by i.
One possible modification of this model is to impose the assumption that ϕi = ϕ for all i; that is,
the individual time series share a common autoregressive root (although they may differ in respect
of other statistical properties). The choice of whether or not to impose this assumption has an
important bearing on the hypotheses under test. Under model (31.12) the joint null is ϕi = 0 for
all i, meaning that all the individual time series are non-stationary, and the alternative (simply the
negation of the null) is that at least one individual time series is stationary. When a common ϕ is
assumed, the null is that ϕ = 0 and the alternative is that ϕ < 0. The null still says that all the
individual series are non-stationary, but the alternative now says that they are all stationary. The
choice of model should take this point into account, as well as the gain in power from forming a
pooled estimate of ϕ and, of course, the plausibility of assuming a common AR(1) coefficient.3
In gretl, the formulation (31.12) is used automatically when the adf command is used on panel
data. The joint test statistic is formed using the method of Im, Pesaran and Shin (2003). In this
context the behavior of adf differs from regular time-series data: only one case of the deterministic
term is handled per invocation of the command; the default is that µit includes just a constant but
the --nc and --ct flags can be used to suppress the constant or to include a trend, respectively;
and the quadratic trend option --ctt is not available.
The alternative that imposes a common value of ϕ is implemented via the levinlin command.
The test statistic is computed as per Levin, Lin and Chu (2002). As with the adf command, the first
argument is the lag order and the second is the name of the series to test; and the default case for
the deterministic component is a constant only. The options --nc and --ct have the same effect
as with adf. One refinement is that the lag order may be given in either of two forms: if a scalar
is given, this is taken to represent a common value of p for all individuals, but you may instead
provide a vector holding a set of pi values, hence allowing the order of autocorrelation of the series
to differ by individual. So, for example, given
levinlin 2 y
levinlin {2,2,3,3,4,4} y
the first command runs a joint ADF test with a common lag order of 2, while the second (which
assumes a panel with six individuals) allows for differing short-run dynamics. The first argument
to levinlin can be given as a set of comma-separated integers enclosed in braces, as shown above,
or as the name of an appropriately dimensioned pre-defined matrix (see chapter 17).
Besides variants of the ADF test, the KPSS test also can be used with panel data via the kpss
command. In this case the test (of the null hypothesis that the given time series is stationary for
all individuals) is implemented using the method of Choi (2001). This is an application of meta-
analysis, the statistical technique whereby an overall or composite p-value for the test of a given
null hypothesis can be computed from the p-values of a set of separate tests. Unfortunately, in
the case of the KPSS test we are limited by the unavailability of precise p-values, although if an
individual test statistic falls between the 10 percent and 1 percent critical values we are able to
interpolate with a fair degree of confidence. This gives rise to four cases.
1. All the individual KPSS test statistics fall between the 10 percent and 1 percent critical values:
the Choi method gives us a plausible composite p-value.
3 If the assumption of a common ϕ seems excessively restrictive, bear in mind that we routinely assume common
slope coefficients when estimating panel models, even if this is unlikely to be literally true.
2. Some of the KPSS test statistics exceed the 1 percent value and none fall short of the 10
percent value: we can give an upper bound for the composite p-value by setting the unknown
p-values to 0.01.
3. Some of the KPSS test statistics fall short of the 10 percent critical value but none exceed the
1 percent value: we can give a lower bound to the composite p-value by setting the unknown
p-values to 0.10.
4. None of the above conditions are satisfied: the Choi method fails to produce any result for
the composite KPSS test.
31.4 Cointegration test

The generally recommended test for cointegration is the Johansen test, which is discussed in detail
in chapter 33. In this context we just offer a few remarks on the cointegration test of Engle and
Granger (1987), because it builds on the univariate ADF test discussed above (section 31.3).
For the Engle–Granger test, the procedure is:
1. Test each series for a unit root using an ADF test.
2. Run a “cointegrating regression” via OLS. For this we select one of the potentially cointegrated
variables as dependent, and include the other potentially cointegrated variables as regressors.
3. Perform an ADF test on the residuals from the cointegrating regression.
The idea is that cointegration is supported if (a) the null of non-stationarity is not rejected for each
of the series individually, in step 1, while (b) the null is rejected for the residuals at step 3. That is,
each of the individual series is I(1) but some linear combination of the series is I(0).
This test is implemented in gretl by the coint command, which requires an integer lag order
(for the ADF tests) followed by a list of variables to be tested, the first of which will be taken
as dependent in the cointegrating regression. Please see the online help for coint, or the Gretl
Command Reference, for further details.
31.5 ARCH and GARCH

Heteroskedasticity means a non-constant variance of the error term in a regression model. Autore-
gressive Conditional Heteroskedasticity (ARCH) is a phenomenon specific to time series models,
whereby the variance of the error displays autoregressive behavior; for instance, the time series ex-
hibits successive periods where the error variance is relatively large, and successive periods where
it is relatively small. This sort of behavior is reckoned to be common in asset markets: an unsettling
piece of news can lead to a period of increased volatility in the market.
An ARCH error process of order q can be represented as
q
X
ut = σt εt ; σt2 ≡ E(u2t |Ωt−1 ) = α0 + αi u2t−i
i=1
where the εt s are independently and identically distributed (iid) with mean zero and variance 1,
and where σt is taken to be the positive square root of σt2 . Ωt−1 denotes the information set as of
time t − 1 and σt2 is the conditional variance: that is, the variance conditional on information dated
t − 1 and earlier.
It is important to notice the difference between ARCH and an ordinary autoregressive error process.
The simplest (first-order) case of the latter can be written as
ut = ρut−1 + εt ; −1 < ρ < 1

where the εt s are independently and identically distributed with mean zero and variance σ 2 . With
an AR(1) error, if ρ is positive then a positive value of ut will tend to be followed by a positive
ut+1 . With an ARCH error process, a disturbance ut of large absolute value will tend to be followed
by further large absolute values, but with no presumption that the successive values will be of the
same sign. ARCH in asset prices is a “stylized fact” and is consistent with market efficiency; on the
other hand autoregressive behavior of asset prices would violate market efficiency.
One can test for ARCH of order q in the following way:
1. Estimate the model of interest via OLS and save the squared residuals, û2t .
2. Perform an auxiliary regression in which the current squared residual is regressed on a con-
stant and q lags of itself.
3. Find the T R 2 value (sample size times unadjusted R 2 ) for the auxiliary regression.
4. Refer the T R 2 value to the χ 2 distribution with q degrees of freedom, and if the p-value is
“small enough” reject the null hypothesis of homoskedasticity in favor of the alternative of
ARCH(q).
This test is implemented in gretl via the modtest command with the --arch option, which must
follow estimation of a time-series model by OLS (either a single-equation model or a VAR). For
example,
ols y 0 x
modtest 4 --arch
This example specifies an ARCH order of q = 4; if the order argument is omitted, q is set equal to
the periodicity of the data. In the graphical interface, the ARCH test is accessible from the “Tests”
menu in the model window (again, for single-equation OLS or VARs).
GARCH
The simple ARCH(q) process is useful for introducing the general concept of conditional het-
eroskedasticity in time series, but it has been found to be insufficient in empirical work. The
dynamics of the error variance permitted by ARCH(q) are not rich enough to represent the patterns
found in financial data. The generalized ARCH or GARCH model is now more widely used.
The representation of the variance of a process in the GARCH model is somewhat (but not exactly)
analogous to the ARMA representation of the level of a time series. The variance at time t is allowed
to depend on both past values of the variance and past values of the realized squared disturbance,
as shown in the following system of equations:
yt = Xt β + ut (31.13)
ut = σt εt (31.14)
q p
X X
σt2 = α0 + αi u2t−i + 2
δj σt−j (31.15)
i=1 j=1
As above, εt is an iid sequence with unit variance. Xt is a matrix of regressors (or in the simplest
case, just a vector of 1s allowing for a non-zero mean of yt ). Note that if p = 0, GARCH collapses
to ARCH(q): the generalization is embodied in the δj terms that multiply previous values of the
error variance.
In principle the underlying innovation, εt , could follow any suitable probability distribution, and
besides the obvious candidate of the normal or Gaussian distribution the Student’s t distribution
has been used in this context. Currently gretl only handles the case where εt is assumed to be
Gaussian. However, when the --robust option to the garch command is given, the estimator gretl
uses for the covariance matrix can be considered Quasi-Maximum Likelihood even with non-normal
disturbances. See below for more on the options regarding the GARCH covariance matrix.
Example:
garch p q ; y const x
where p ≥ 0 and q > 0 denote the respective lag orders as shown in equation (31.15). These values
can be supplied in numerical form or as the names of pre-defined scalar variables.
GARCH estimation
Estimation of the parameters of a GARCH model is by no means a straightforward task. (Consider
equation 31.15: the conditional variance at any point in time, σt2 , depends on the conditional
variance in earlier periods, but σt2 is not observed, and must be inferred by some sort of Maximum
Likelihood procedure.) By default gretl uses native code that employs the BFGS maximizer; you
also have the option (activated by the --fcp command-line switch) of using the method proposed
by Fiorentini et al. (1996),4 which was adopted as a benchmark in the study of GARCH results
by McCullough and Renfro (1998). It employs analytical first and second derivatives of the log-
likelihood, and uses a mixed-gradient algorithm, exploiting the information matrix in the early
iterations and then switching to the Hessian in the neighborhood of the maximum likelihood. (This
progress can be observed if you append the --verbose option to gretl’s garch command.)
Several options are available for computing the covariance matrix of the parameter estimates in
connection with the garch command. At a first level, one can choose between a “standard” and a
“robust” estimator. By default, the Hessian is used unless the --robust option is given, in which
case the QML estimator is used. A finer choice is available via the set command, as shown in
Table 31.2.
Table 31.2: Options for the GARCH covariance matrix
command effect
set garch_vcv hessian Use the Hessian
set garch_vcv im Use the Information Matrix
set garch_vcv op Use the Outer Product of the Gradient
set garch_vcv qml QML estimator
set garch_vcv bw Bollerslev–Wooldridge “sandwich” estimator
It is not uncommon, when one estimates a GARCH model for an arbitrary time series, to find that
the iterative calculation of the estimates fails to converge. For the GARCH model to make sense,
there are strong restrictions on the admissible parameter values, and it is not always the case
that there exists a set of values inside the admissible parameter space for which the likelihood is
maximized.
The restrictions in question can be explained by reference to the simplest (and much the most
common) instance of the GARCH model, where p = q = 1. In the GARCH(1, 1) model the conditional
variance is
σt2 = α0 + α1 u2t−1 + δ1 σt−1
2
(31.16)
Taking the unconditional expectation of (31.16) we get
σ 2 = α0 + α1 σ 2 + δ1 σ 2
4 The algorithm is based on Fortran code deposited in the archive of the Journal of Applied Econometrics by the
authors, and is used by kind permission of Professor Fiorentini.

so that
α0
σ2 =
1 − α1 − δ 1
For this unconditional variance to exist, we require that α1 + δ1 < 1, and for it to be positive we
require that α0 > 0.
A common reason for non-convergence of GARCH estimates (that is, a common reason for the non-
existence of αi and δi values that satisfy the above requirements and at the same time maximize
the likelihood of the data) is misspecification of the model. It is important to realize that GARCH, in
itself, allows only for time-varying volatility in the data. If the mean of the series in question is not
constant, or if the error process is not only heteroskedastic but also autoregressive, it is necessary
to take this into account when formulating an appropriate model. For example, it may be necessary
to take the first difference of the variable in question and/or to add suitable regressors, Xt , as in
(31.13).
Chapter 32
Vector Autoregressions
Gretl provides a standard set of procedures for dealing with the multivariate time-series models
known as VARs (Vector AutoRegression). More general models — such as VARMAs, nonlinear models
or multivariate GARCH models—are not provided as of now, although it is entirely possible to
estimate them by writing custom procedures in the gretl scripting language. In this chapter, we will
briefly review gretl’s VAR toolbox.
32.1 Notation
A VAR is a structure whose aim is to model the time persistence of a vector of n time series, yt ,
via a multivariate autoregression, as in
yt = A1 yt−1 + A2 yt−2 + · · · + Ap yt−p + Bxt + ϵt (32.1)
The number of lags p is called the order of the VAR. The vector xt , if present, contains a set of
exogenous variables, often including a constant, possibly with a time trend and seasonal dummies.
The vector ϵt is typically assumed to be a vector white noise, with covariance matrix Σ.
Equation (32.1) can be written more compactly as
A(L)yt = Bxt + ϵt (32.2)
where A(L) is a matrix polynomial in the lag operator, or as

       
yt yt−1 B ϵt
yt−1  = A  yt−2
  0
 xt +  0
       
     
 +  (32.3)

 ··· 

 ···

  ···
 


 ···



yt−p−1 yt−p 0 0
The matrix A is known as the “companion matrix” and equals

 
A1 A2 ··· Ap
 I 0 ··· 0 
 
A= 0
 
 I ··· 0 
.. .. .. ..
 
. . . .
Equation (32.3) is known as the “companion form” of the VAR.

Another representation of interest is the so-called “VMA representation”, which is written in terms
of an infinite series of matrices Θi defined as
∂yt
Θi = (32.4)
∂ϵt−i
The Θi matrices may be derived by recursive substitution in equation (32.1): for example, assuming
for simplicity that B = 0 and p = 1, equation (32.1) would become
yt = Ayt−1 + ϵt
296
Chapter 32. Vector Autoregressions 297
which could be rewritten as
yt = An+1 yt−n−1 + ϵt + Aϵt−1 + A2 ϵt−2 + · · · + An ϵt−n
In this case Θi = Ai . In general, it is possible to compute Θi as the n × n north-west block of the

i-th power of the companion matrix A (so Θ0 is always an identity matrix).
The VAR is said to be stable if all the eigenvalues of the companion matrix A are smaller than 1
in absolute value, or equivalently, if the matrix polynomial A(L) in equation (32.2) is such that
|A(z)| = 0 implies |z| > 1. If this is the case, limn→∞ Θn = 0 and the vector yt is stationary; as a
consequence, the equation
∞
X
yt − E(yt ) = Θi ϵt−i (32.5)
i=0
is a legitimate Wold representation.

If the VAR is not stable, then the inferential procedures that are called for become somewhat more
specialized, except for some simple cases. In particular, if the number of eigenvalues of A with
modulus 1 is between 1 and n − 1, the canonical tool to deal with these models is the cointegrated
VAR model, discussed in chapter 33.
32.2 Estimation
The gretl command for estimating a VAR is var which, in the command line interface, is invoked
in the following manner:
[ modelname <- ] var p Ylist [; Xlist]
where p is a scalar (the VAR order) and Ylist is a list of variables specifying the content of yt .
The optional Xlist argument can be used to specify a set of exogenous variables. If this argument
is omitted, the vector xt is taken to contain a constant (only); if present, it must be separated
from Ylist by a semicolon. Note, however, that a few common choices can be obtained in a
simpler way: the options --trend and --seasonals call for inclusion of a linear trend and a set of
seasonal dummies respectively. In addition the --nc option (no constant) can be used to suppress
the standard inclusion of a constant.
The “<-” construct can be used to store the model under a name (see section 3.2), if so desired. To
estimate a VAR using the graphical interface, choose “Time Series, Vector Autoregression”, under
the Model menu.
The parameters in eq. (32.1) are typically free from restrictions, which implies that multivariate
OLS provides a consistent and asymptotically efficient estimator of all the parameters.1 Given
the simplicity of OLS, this is what every software package, including gretl, uses; example script
32.1 exemplifies the fact that the var command gives you exactly the output you would have
from a battery of OLS regressions. The advantage of using the dedicated command is that, after
estimation is done, it makes it much easier to access certain quantities and manage certain tasks.
For example, the $coeff accessor returns the estimated coefficients as a matrix with n columns
and $sigma returns an estimate of the matrix Σ, the covariance matrix of ϵt .
Moreover, for each variable in the system an F test is automatically performed, in which the null hy-
pothesis is that no lags of variable j are significant in the equation for variable i. This is commonly
known as a Granger causality test.
In addition, two accessors become available for the companion matrix ($compan) and the VMA rep-
resentation ($vma). The latter deserves a detailed description: since the VMA representation (32.5)
is of infinite order, gretl defines a horizon up to which the Θi matrices are computed automatically.
1 In fact, under normality of ϵ OLS is indeed the conditional ML estimator. You may want to use other methods if you
t
need to estimate a VAR in which some parameters are constrained.
Listing 32.1: Estimation of a VAR via OLS [Download ▼]

Input:
open sw_ch14.gdt
series infl = 400*sdiff(log(PUNEW))
scalar p = 2
list X = LHUR infl
list Xlag = lags(p,X)
loop foreach i X
ols $i const Xlag
endloop
var p X

Model 1: OLS, using observations 1960:3-1999:4 (T = 158)
Dependent variable: LHUR

--------------------------------------------------------
const 0.113673 0.0875210 1.299 0.1960
LHUR_1 1.54297 0.0680518 22.67 8.78e-51 ***
LHUR_2 -0.583104 0.0645879 -9.028 7.00e-16 ***
infl_1 0.0219040 0.00874581 2.505 0.0133 **
infl_2 -0.0148408 0.00920536 -1.612 0.1090
Mean dependent var 6.019198 S.D. dependent var 1.502549

Sum squared resid 8.654176 S.E. of regression 0.237830
...
VAR system, lag order 2

OLS estimates, observations 1960:3-1999:4 (T = 158)
Log-likelihood = -322.73663
Determinant of covariance matrix = 0.20382769
AIC = 4.2119
BIC = 4.4057
HQC = 4.2906
Portmanteau test: LB(39) = 226.984, df = 148 [0.0000]
Equation 1: LHUR

--------------------------------------------------------
const 0.113673 0.0875210 1.299 0.1960
LHUR_1 1.54297 0.0680518 22.67 8.78e-51 ***
LHUR_2 -0.583104 0.0645879 -9.028 7.00e-16 ***
infl_1 0.0219040 0.00874581 2.505 0.0133 **
infl_2 -0.0148408 0.00920536 -1.612 0.1090

Periodicity horizon
Quarterly 20 (5 years)
Monthly 24 (2 years)
Daily 3 weeks
All other cases 10
Table 32.1: VMA horizon as a function of the dataset periodicity
By default, this is a function of the periodicity of the data (see table 32.1), but it can be set by the
user to any desired value via the set command with the horizon parameter, as in
set horizon 30
Calling the horizon h, the $vma accessor returns an (h + 1) × n2 matrix, in which the (i + 1)-th row
is the vectorized form of Θi .
VAR lag-order selection

In order to help the user choose the most appropriate VAR order, gretl provides a special variant
of the var command:
var p Ylist [; Xlist] --lagselect
When the --lagselect option is given, estimation is performed for all lags up to p and a table
is printed: it displays, for each order, a Likelihood Ratio test for the order p versus p − 1, plus
an array of information criteria (see chapter 28). For each information criterion in the table, a
star indicates what appears to be the “best” choice. The same output can be obtained through the
graphical interface via the “Time Series, VAR lag selection” entry under the Model menu.
Warning: in finite samples the choice of the maximum lag, p, may affect the outcome of the proce-
dure. This is not a bug, but rather an unavoidable side effect of the way these comparisons should
be made. If your sample contains T observations and you invoke the lag selection procedure with
maximum order p, gretl examines all VARs of order ranging form 1 to p, estimated on a uniform
sample of T − p observations. In other words, the comparison procedure does not use all the avail-
able data when estimating VARs of order less than p, so as to ensure that all the models in the
comparison are estimated on the same data range. Choosing a different value of p may therefore
alter the results, although this is unlikely to happen if your sample size is reasonably large.
An example of this unpleasant phenomenon is given in example script 32.2. As can be seen, ac-
cording to the Hannan-Quinn criterion, order 2 seems preferable to order 1 if the maximum tested
order is 4, but the situation is reversed if the maximum tested order is 6.
32.3 Structural VARs

Gretl’s built-in var command does not support the general class of models known as “Structural
VARs”—though it does support the Cholesky decomposition-based approach, the classic and most
popular structural VAR variant. If you wish to go beyond that there is a gretl “addon” named SVAR
which will likely meet your needs. SVAR is supplied as part of the gretl package, you can find its
documentation (which is quite detailed) as follows: under the Tools menu in the gretl main window,
go to “Function packages/On local machine.” (Or use the “f x” button on the toolbar at the foot of
the main window.) In the function packages window either scroll down or use the search box to
find SVAR. Then right-click and select “Info.” This opens a window which gives basic information
on the package, including a link to SVAR.pdf, the full documentation.
The remainder of this section will thus only deal with the Cholesky-based recursive shock identifi-
cation used by the native var command.
Listing 32.2: VAR lag selection via Information Criteria

Input:
open denmark
list Y = 1 2 3 4
var 4 Y --lagselect
var 6 Y --lagselect

VAR system, maximum lag order 4
The asterisks below indicate the best (that is, minimized) values
of the respective information criteria, AIC = Akaike criterion,
BIC = Schwarz Bayesian criterion and HQC = Hannan-Quinn criterion.
lags loglik p(LR) AIC BIC HQC
1 609.15315 -23.104045 -22.346466* -22.814552

2 631.70153 0.00013 -23.360844* -21.997203 -22.839757*
3 642.38574 0.16478 -23.152382 -21.182677 -22.399699
4 653.22564 0.15383 -22.950025 -20.374257 -21.965748
VAR system, maximum lag order 6
The asterisks below indicate the best (that is, minimized) values
of the respective information criteria, AIC = Akaike criterion,
BIC = Schwarz Bayesian criterion and HQC = Hannan-Quinn criterion.
lags loglik p(LR) AIC BIC HQC
1 594.38410 -23.444249 -22.672078* -23.151288*

2 615.43480 0.00038 -23.650400* -22.260491 -23.123070
3 624.97613 0.26440 -23.386781 -21.379135 -22.625083
4 636.03766 0.13926 -23.185210 -20.559827 -22.189144
5 658.36014 0.00016 -23.443271 -20.200150 -22.212836
6 669.88472 0.11243 -23.260601 -19.399743 -21.795797
IRF and FEVD

Assume that the disturbance in equation (32.1) can be thought of as a linear function of a vector
of structural shocks ut , which are assumed to have unit variance and to be mutually unncorrelated,
so V (ut ) = I. If ϵt = Kut , it follows that Σ = V (ϵt ) = KK ′ .
The main object of interest in this setting is the sequence of matrices
∂yt
Ck = = Θk K, (32.6)
∂ut−i
known as the structural VMA representation. From the Ck matrices defined in equation (32.6) two
quantities of interest may be derived: the Impulse Response Function (IRF) and the Forecast Error
Variance Decomposition (FEVD).
The IRF of variable i to shock j is simply the sequence of the elements in row i and column j of
the Ck matrices. In symbols:
∂yi,t
Ii,j,k =
∂uj,t−k
As a rule, Impulse Response Functions are plotted as a function of k, and are interpreted as the
effect that a shock has on an observable variable through time. Of course, what we observe are
the estimated IRFs, so it is natural to endow them with confidence intervals: following common
practice, gretl computes the confidence intervals by using the bootstrap;2 details are given later in
this section.
Another quantity of interest that may be computed from the structural VMA representation is the
Forecast Error Variance Decomposition (FEVD). The forecast error variance after h steps is given by
h
X
Ωh = Ck Ck′
k=0
hence the variance for variable i is

h
X h X
X n
ω2i = [Ωh ]i,i = diag(Ck Ck′ )i = (k ci.l )2
k=0 k=0 l=1
where k ci.l is, trivially, the i, l element of Ck . As a consequence, the share of uncertainty on variable
i that can be attributed to the j-th shock after h periods equals
Ph 2
k=0 (k ci.j )
V Di,j,h = Ph Pn .
2
k=0 l=1 (k ci.l )
This makes it possible to quantify which shocks are most important to determine a certain variable
in the short and/or in the long run.
Triangularization
The formula 32.6 takes K as known, while of course it has to be estimated. The estimation problem
has been the subject of an enormous body of literature we will not even attempt to summarize
here: see for example (Lütkepohl, 2005, chapter 9).
Suffice it to say that the most popular choice dates back to Sims (1980), and consists in assuming
that K is lower triangular, so its estimate is simply the Cholesky decomposition of the estimate of Σ.
The main consequence of this choice is that the ordering of variables within the vector yt becomes
meaningful: since K is also the matrix of Impulse Response Functions at lag 0, the triangularity
2 It is possible, in principle, to compute analytical confidence intervals via an asymptotic approximation, but this is
not a very popular choice: asymptotic formulae are known to often give a very poor approximation of the finite-sample
properties.
assumption means that the first variable in the ordering responds instantaneously only to shock
number 1, the second one only to shocks 1 and 2, and so forth. For this reason, each variable is
thought to “own” one shock: variable 1 owns shock number 1, and so on.
In this sort of exercise, therefore, the ordering of the y variables is important. To put it differently,
if variable foo comes before variable bar in the Y list, it follows that the shock owned by foo
affects bar instantaneously, but not vice versa.
Impulse Response Functions and the FEVD can be printed out via the command line interface by
using the --impulse-responses and --variance-decomp options, respectively. If you need to
store them into matrices, you could compute the structural VMA and proceed from there. For
example, the following code snippet shows you how to manually compute a matrix containing the
IRFs:
open denmark
list Y = 1 2 3 4
scalar n = nelem(Y)
var 2 Y --quiet --impulse-responses
matrix K = cholesky($sigma)
matrix V = $vma
matrix IRF = V * (K ** I(n))
print IRF
in which the equality

vec(Ck ) = vec(Θk K) = (K ′ ⊗ I)vec(Θk )
was used.
A more convenient way of obtaining the desired quantities is to use the irf and fevd functions
which can be used in scripts after a VAR (or VECM, see the next chapter) has been estimated. In
these functions you must specify the number of the responding (target) variable and the number of
the analyzed shock to get the corresponding results as a column vector. The choice of how many
periods should be calculated –and thus how long the result vector will be– is determined by previ-
ously invoking set horizon x, where x is a non-negative integer and the first response concerns
the impact effect. As always, it is recommended to consult the function reference under the help
menu, where in the case of the irf function it is also explained that the implicit shock size is such
that the impact response in the same equation is one standard deviation (of the corresponding
error term).
IRF bootstrap
The IRFs obtained above are estimates and as such they are uncertain. Mostly due to the fact that
they are nonlinear functions of the VAR parameters the standard way of assessing this estimation
uncertainty and to derive confidence intervals or bands is to use a bootstrap approach. Again, more
advanced options are available with the SVAR addon, but the irf function used after the built-in
var (or vecm) command also provides the option to run a bootstrap based on resampling from
the residuals. (The number of bootstrap iterations can be adjusted through set boot_iters x,
where x must be larger than 499.) The desired nominal confidence level must be specified after
the target and shock numbers as the third argument, and in that case the return vector becomes
a three-column matrix where the lower and upper bounds of the confidence intervals are given in
the extra two columns.
Menu-driven usage
Almost all the functionality related to the described (recursively identified) structural VARs is also
available under the menus in the model window that appears after a VAR is estimated in the GUI.3
3 Note that you cannot directly invoke the SVAR addon from the model window of an estimated VAR; that menu entry
is only present in gretl’s main window under the Model menu and multivariate time series sub-menu.
• In the “Plots” menu there are a number of menu entries relating to the impulse responses
as well as one entry for the forecast error variance decomposition. Selecting any of these
will bring up a little specification window where the ordering for the Cholesky decomposition
must be chosen, and in case of IRFs the intended bootstrap coverage can be set.
• In the “Analysis” menu there are also entries for IRF and FEVD, which may sometimes be a
little confusing. The point is that here the numbers (of the point estimates) will be printed
out in a tabular format instead of being plotted.
32.4 Residual-based diagnostic tests

Three diagnostic tests based on residuals are available after estimating a VAR — for normality,
autocorrelation and ARCH (Autoregressive Conditional Heteroskedasticity). These are implemented
by the modtest command, using the options --normality, --autocorr and --arch, respectively.
The (multivariate) normality test is that of Doornik and Hansen (1994); it is based on the skewness
and kurtosis of the VAR residuals.
The autocorrelation and ARCH test are also by default multivariate; they are described in detail
by Lütkepohl (2005) (see sections 4.4.4 and 16.5.1). Both tests are of the LM type, although the
autocorrelation test statistic is referred to a Rao F distribution (Rao, 1973). These tests may involve
estimation of a large number of parameters, depending on the lag horizon chosen, and can fail for
lack of degrees of freedom in small samples. As a fallback, the --univariate option can be used
to specify that the tests be run per-equation rather than in multivariate mode.
Listing 32.3 illustrates the VAR autocorrelation tests, replicating an example given by Lütkepohl
(2005, p. 174). Note the difference in the interpretation of the order argument to modtest with the
--autocorr option (this also applies to the ARCH test): in the multivariate version order is taken
as the maximum lag order and tests are run from lag 1 up to the maximum; but in the univariate
version a single test is run for each equation using just the specified lag order. The example also
exposes what exactly is returned by the $test and $pvalue accessors in the two variants.
Listing 32.3: VAR autocorrelation test from Lütkepohl [Download ▼]

Input:
open wgmacro.gdt --quiet
list Y = investment income consumption
list dlnY = ldiff(Y)
smpl 1960:4 1978:4
var 2 dlnY
modtest 4 --autocorr
eval $test ~ $pvalue
modtest 4 --autocorr --univariate
eval $test ~ $pvalue
Output from tests:

? modtest 4 --autocorr
Test for autocorrelation of order up to 4
Rao F Approx dist. p-value

lag 1 0.615 F(9, 148) 0.7827
lag 2 0.754 F(18, 164) 0.7507
lag 3 1.143 F(27, 161) 0.2982
lag 4 1.254 F(36, 154) 0.1743
? eval $test ~ $pvalue

0.61524 0.78269
0.75397 0.75067
1.1429 0.29820
1.2544 0.17431
? modtest 4 --autocorr --univariate

Test for autocorrelation of order 4
Equation 1:
Ljung-Box Q’ = 6.11506 with p-value = P(Chi-square(4) > 6.11506) = 0.191
Equation 2:
Equation 3:
? eval $test ~ $pvalue

6.1151 0.19072
1.6714 0.79591
1.5993 0.80892
Chapter 33
Cointegration and Vector Error Correction Models
33.1 Introduction
The twin concepts of cointegration and error correction have drawn a good deal of attention in
macroeconometrics over recent years. The attraction of the Vector Error Correction Model (VECM)
is that it allows the researcher to embed a representation of economic equilibrium relationships
within a relatively rich time-series specification. This approach overcomes the old dichotomy be-
tween (a) structural models that faithfully represented macroeconomic theory but failed to fit the
data, and (b) time-series models that were accurately tailored to the data but difficult if not impos-
sible to interpret in economic terms.
The basic idea of cointegration relates closely to the concept of unit roots (see section 31.3). Sup-
pose we have a set of macroeconomic variables of interest, and we find we cannot reject the hypoth-
esis that some of these variables, considered individually, are non-stationary. Specifically, suppose
we judge that a subset of the variables are individually integrated of order 1, or I(1). That is, while
they are non-stationary in their levels, their first differences are stationary. Given the statistical
problems associated with the analysis of non-stationary data (for example, the threat of spurious
regression), the traditional approach in this case was to take first differences of all the variables
before proceeding with the analysis.
But this can result in the loss of important information. It may be that while the variables in
question are I(1) when taken individually, there exists a linear combination of the variables that
is stationary without differencing, or I(0). (There could be more than one such linear combina-
tion.) That is, while the ensemble of variables may be “free to wander” over time, nonetheless the
variables are “tied together” in certain ways. And it may be possible to interpret these ties, or
cointegrating vectors, as representing equilibrium conditions.
For example, suppose we find some or all of the following variables are I(1): money stock, M, the
price level, P , the nominal interest rate, R, and output, Y . According to standard theories of the
demand for money, we would nonetheless expect there to be an equilibrium relationship between
real balances, interest rate and output; for example
m − p = γ0 + γ1 y + γ2 r γ1 > 0, γ2 < 0
where lower-case variable names denote logs. In equilibrium, then,
m − p − γ1 y − γ2 r = γ0
Realistically, we should not expect this condition to be satisfied each period. We need to allow for
the possibility of short-run disequilibrium. But if the system moves back towards equilibrium fol-
lowing a disturbance, it follows that the vector x = (m, p, y, r )′ is bound by a cointegrating vector
β′ = (β1 , β2 , β3 , β4 ), such that β′ x is stationary (with a mean of γ0 ). Furthermore, if equilibrium is
correctly characterized by the simple model above, we have β2 = −β1 , β3 < 0 and β4 > 0. These
things are testable within the context of cointegration analysis.
There are typically three steps in this sort of analysis:
1. Test to determine the number of cointegrating vectors, the cointegrating rank of the system.
2. Estimate a VECM with the appropriate rank, but subject to no further restrictions.
305
Chapter 33. Cointegration and Vector Error Correction Models 306
3. Probe the interpretation of the cointegrating vectors as equilibrium conditions by means of

restrictions on the elements of these vectors.
The following sections expand on each of these points, giving further econometric details and
explaining how to implement the analysis using gretl.
33.2 Vector Error Correction Models as representation of a cointegrated system

Consider a VAR of order p with a deterministic part given by µt (typically, a polynomial in time).
One can write the n-variate process yt as
yt = µt + A1 yt−1 + A2 yt−2 + · · · + Ap yt−p + ϵt (33.1)
But since yt−i ≡ yt−1 − (∆yt−1 + ∆yt−2 + · · · + ∆yt−i+1 ), we can re-write the above as
p−1
X
∆yt = µt + Πyt−1 + Γi ∆yt−i + ϵt , (33.2)
i=1
Pp Pp
where Π = i=1 Ai − I and Γi = − j=i+1 Aj . This is the VECM representation of (33.1).
The interpretation of (33.2) depends crucially on r , the rank of the matrix Π.
• If r = 0, the processes are all I(1) and not cointegrated.
• If r = n, then Π is invertible and the processes are all I(0).
• Cointegration occurs in between, when 0 < r < n and Π can be written as αβ′ . In this case,
yt is I(1), but the combination zt = β′ yt is I(0). If, for example, r = 1 and the first element
of β was −1, then one could write zt = −y1,t + β2 y2,t + · · · + βn yn,t , which is equivalent to
saying that
y1t = β2 y2,t + · · · + βn yn,t − zt
is a long-run equilibrium relationship: the deviations zt may not be 0 but they are stationary.
In this case, (33.2) can be written as
p−1
X
∆yt = µt + αβ′ yt−1 + Γi ∆yt−i + ϵt . (33.3)
i=1
If β were known, then zt would be observable and all the remaining parameters could be
estimated via OLS. In practice, the procedure estimates β first and then the rest.
The rank of Π is investigated by computing the eigenvalues of a closely related matrix whose rank
is the same as Π: however, this matrix is by construction symmetric and positive semidefinite. As a
consequence, all its eigenvalues are real and non-negative, and tests on the rank of Π can therefore
be carried out by testing how many eigenvalues are 0.
If all the eigenvalues are significantly different from 0, then all the processes are stationary. If,
on the contrary, there is at least one zero eigenvalue, then the yt process is integrated, although
some linear combination β′ yt might be stationary. At the other extreme, if no eigenvalues are
significantly different from 0, then not only is the process yt non-stationary, but the same holds
for any linear combination β′ yt ; in other words, no cointegration occurs.
Estimation typically proceeds in two stages: first, a sequence of tests is run to determine r , the
cointegration rank. Then, for a given rank the parameters in equation (33.3) are estimated. The two
commands that gretl offers for estimating these systems are johansen and vecm, respectively.
The syntax for johansen is
johansen p ylist [ ; xlist [ ; zlist ] ]
where p is the number of lags in (33.1); ylist is a list containing the yt variables; xlist is an
optional list of exogenous variables; and zlist is another optional list of exogenous variables
whose effects are assumed to be confined to the cointegrating relationships.
The syntax for vecm is
vecm p r ylist [ ; xlist [ ; zlist ] ]
where p is the number of lags in (33.1); r is the cointegration rank; and the lists ylist, xlist and
zlist have the same interpretation as in johansen.
Both commands can be given specific options to handle the treatment of the deterministic compo-
nent µt . These are discussed in the following section.
33.3 Interpretation of the deterministic components

Statistical inference in the context of a cointegrated system depends on the hypotheses one is
willing to make on the deterministic terms, which leads to the famous “five cases.”
In equation (33.2), the term µt is usually understood to take the form
µt = µ0 + µ1 · t.
In order to have the model mimic as closely as possible the features of the observed data, there is a
preliminary question to settle. Do the data appear to follow a deterministic trend? If so, is it linear
or quadratic?
Once this is established, one should impose restrictions on µ0 and µ1 that are consistent with this
judgement. For example, suppose that the data do not exhibit a discernible trend. This means that
∆yt is on average zero, so it is reasonable to assume that its expected value is also zero. Write
equation (33.2) as
Γ (L)∆yt = µ0 + µ1 · t + αzt−1 + ϵt , (33.4)
where zt = β′ yt is assumed to be stationary and therefore to possess finite moments. Taking
unconditional expectations, we get
0 = µ0 + µ1 · t + αmz .
Since the left-hand side does not depend on t, the restriction µ1 = 0 is a safe bet. As for µ0 , there are
just two ways to make the above expression true: either µ0 = 0 with mz = 0, or µ0 equals −αmz .
The latter possibility is less restrictive in that the vector µ0 may be non-zero, but is constrained to
be a linear combination of the columns of α. In that case, µ0 can be written as α · c, and one may
write (33.4) as " #
′ yt−1
Γ (L)∆yt = α β c + ϵt .
1
The long-run relationship therefore contains an intercept. This type of restriction is usually written
′
α⊥ µ0 = 0,
where α⊥ is the left null space of the matrix α.

An intuitive understanding of the issue can be gained by means of a simple example. Consider a
series xt which behaves as follows
xt = m + xt−1 + εt
where m is a real number and εt is a white noise process: xt is then a random walk with drift m.
In the special case m = 0, the drift disappears and xt is a pure random walk.
Consider now another process yt , defined by
yt = k + xt + ut
where, again, k is a real number and ut is a white noise process. Since ut is stationary by definition,
xt and yt cointegrate: that is, their difference
zt = yt − xt = k + ut
is a stationary process. For k = 0, zt is simple zero-mean white noise, whereas for k ̸= 0 the process
zt is white noise with a non-zero mean.
After some simple substitutions, the two equations above can be represented jointly as a VAR(1)
system " # " # " #" # " #
yt k+m 0 1 yt−1 ut + εt
= + +
xt m 0 1 xt−1 εt
or in VECM form
" # " # " #" # " #
∆yt k+m −1 1 yt−1 ut + εt
= + + =
∆xt m 0
0 xt−1 εt
" # " # " # " #
k+m −1 h i yt−1 ut + εt
= + 1 −1 + =
m 0 xt−1 εt
" #
′ yt−1
= µ0 + αβ + ηt = µ0 + αzt−1 + ηt ,
xt−1
where β is the cointegration vector and α is the “loadings” or “adjustments” vector.

We are now ready to consider three possible cases:
1. m ̸= 0: In this case xt is trended, as we just saw; it follows that yt also follows a linear trend
because on average it keeps at a fixed distance k from xt . The vector µ0 is unrestricted.
2. m = 0 and k ̸= 0: In this case, xt is not trended and as a consequence neither is yt . However,

the mean distance between yt and xt is non-zero. The vector µ0 is given by
" #
k
µ0 =
0
which is not null and therefore the VECM shown above does have a constant term. The
constant, however, is subject to the restriction that its second element must be 0. More
generally, µ0 is a multiple of the vector α. Note that the VECM could also be written as
 
" # " # yt−1 " #
∆yt −1 h i   ut + εt
= 1 −1 −k  xt−1  +
 
∆xt 0 εt
1
which incorporates the intercept into the cointegration vector. This is known as the “restricted
constant” case.
3. m = 0 and k = 0: This case is the most restrictive: clearly, neither xt nor yt are trended, and
the mean distance between them is zero. The vector µ0 is also 0, which explains why this case
is referred to as “no constant.”
In most cases, the choice between these three possibilities is based on a mix of empirical obser-
vation and economic reasoning. If the variables under consideration seem to follow a linear trend
then we should not place any restriction on the intercept. Otherwise, the question arises of whether
it makes sense to specify a cointegration relationship which includes a non-zero intercept. One ex-
ample where this is appropriate is the relationship between two interest rates: generally these are
not trended, but the VAR might still have an intercept because the difference between the two (the
“interest rate spread”) might be stationary around a non-zero mean (for example, because of a risk
or liquidity premium).
The previous example can be generalized in three directions:
1. If a VAR of order greater than 1 is considered, the algebra gets more convoluted but the
conclusions are identical.
2. If the VAR includes more than two endogenous variables the cointegration rank r can be
greater than 1. In this case, α is a matrix with r columns, and the case with restricted constant
entails the restriction that µ0 should be some linear combination of the columns of α.
3. If a linear trend is included in the model, the deterministic part of the VAR becomes µ0 + µ1 t.
The reasoning is practically the same as above except that the focus now centers on µ1 rather
than µ0 . The counterpart to the “restricted constant” case discussed above is a “restricted
trend” case, such that the cointegration relationships include a trend but the first differences
of the variables in question do not. In the case of an unrestricted trend, the trend appears
in both the cointegration relationships and the first differences, which corresponds to the
presence of a quadratic trend in the variables themselves (in levels).
In order to accommodate the five cases, gretl provides the following options to the johansen and
vecm commands:
µt option flag description

0 --nc no constant
′
µ0 , α⊥ µ0 = 0 --rc restricted constant
µ0 --uc unrestricted constant
′
µ0 + µ1 t, α⊥ µ1 = 0 --crt constant + restricted trend
µ0 + µ1 t --ct constant + unrestricted trend
Note that for this command the above options are mutually exclusive. In addition, you have the
option of using the --seasonals options, for augmenting µt with centered seasonal dummies. In
each case, p-values are computed via the approximations devised by Doornik (1998).
33.4 The Johansen cointegration tests

The two Johansen tests for cointegration are used to establish the rank of β, or in other words
the number of cointegrating vectors. These are the “λ-max” test, for hypotheses on individual
eigenvalues, and the “trace” test, for joint hypotheses. Suppose that the eigenvalues λi are sorted
from largest to smallest. The null hypothesis for the λ-max test on the i-th eigenvalue is that λi = 0.
The corresponding trace test, instead, considers the hypothesis λj = 0 for all j ≥ i.
The gretl command johansen performs these two tests. The corresponding menu entry in the GUI
is “Model, Time Series, Cointegration Test, Johansen”.
As in the ADF test, the asymptotic distribution of the tests varies with the deterministic component
µt one includes in the VAR (see section 33.3 above). The following code uses the denmark data file,
supplied with gretl, to replicate Johansen’s example found in his 1995 book.
open denmark
johansen 2 LRM LRY IBO IDE --rc --seasonals
In this case, the vector yt in equation (33.2) comprises the four variables LRM, LRY, IBO, IDE. The
number of lags equals p in (33.2) (that is, the number of lags of the model written in VAR form).
Part of the output is reported below:
Johansen test:
Number of equations = 4
Lag order = 2
Estimation period: 1974:3 - 1987:3 (T = 53)
Case 2: Restricted constant

Rank Eigenvalue Trace test p-value Lmax test p-value
0 0.43317 49.144 [0.1284] 30.087 [0.0286]
1 0.17758 19.057 [0.7833] 10.362 [0.8017]
2 0.11279 8.6950 [0.7645] 6.3427 [0.7483]
3 0.043411 2.3522 [0.7088] 2.3522 [0.7076]
Both the trace and λ-max tests accept the null hypothesis that the smallest eigenvalue is 0 (see the
last row of the table), so we may conclude that the series are in fact non-stationary. However, some
linear combination may be I(0), since the λ-max test rejects the hypothesis that the rank of Π is 0
(though the trace test gives less clear-cut evidence for this, with a p-value of 0.1284).
33.5 Identification of the cointegration vectors

The core problem in the estimation of equation (33.2) is to find an estimate of Π that has by con-
struction rank r , so it can be written as Π = αβ′ , where β is the matrix containing the cointegration
vectors and α contains the “adjustment” or “loading” coefficients whereby the endogenous vari-
ables respond to deviation from equilibrium in the previous period.
Without further specification, the problem has multiple solutions (in fact, infinitely many). The
parameters α and β are under-identified: if all columns of β are cointegration vectors, then any
arbitrary linear combinations of those columns is a cointegration vector too. To put it differently,
if Π = α0 β′0 for specific matrices α0 and β0 , then Π also equals (α0 Q)(Q−1 β′0 ) for any conformable
non-singular matrix Q. In order to find a unique solution, it is therefore necessary to impose
some restrictions on α and/or β. It can be shown that the minimum number of restrictions that
is necessary to guarantee identification is r 2 . Normalizing one coefficient per column to 1 (or −1,
according to taste) is a trivial first step, which also helps in that the remaining coefficients can be
interpreted as the parameters in the equilibrium relations, but this only suffices when r = 1.
The method that gretl uses by default is known as the “Phillips normalization”, or “triangular
representation”.1 The starting point is writing β in partitioned form as in
" #
β1
β=
β2
where β1 is an r × r matrix and β2 is (n − r ) × r . Assuming that β1 has full rank, β can be

post-multiplied by β−1
1 , giving " # " #
I I
β̂ = = .
β2 β−1
1 −B
The coefficients that gretl produces are β̂, with B known as the matrix of unrestricted coefficients.
In terms of the underlying equilibrium relationship, the Phillips normalization expresses the system
1 For comparison with other studies, you may wish to normalize β differently. Using the set command you
can do set vecm_norm diag to select a normalization that simply scales the columns of the original β such that
βij = 1 for i = j and i ≤ r , as used in the empirical section of Boswijk and Doornik (2004). Another alternative is
set vecm_norm first, which scales β such that the elements on the first row equal 1. To suppress normalization
altogether, use set vecm_norm none. (To return to the default: set vecm_norm phillips.)
of r equilibrium relations as
y1,t = b1,r +1 yr +1,t + . . . + b1,n yn,t

y2,t = b2,r +1 yr +1,t + . . . + b2,n yn,t
..
.
yr ,t = br ,r +1 yr +1,t + . . . + br ,n yr ,t
where the first r variables are expressed as functions of the remaining n − r .

Although the triangular representation ensures that the statistical problem of estimating β is
solved, the resulting equilibrium relationships may be difficult to interpret. In this case, the user
may want to achieve identification by specifying manually the system of r 2 constraints that gretl
will use to produce an estimate of β.
As an example, consider the money demand system presented in section 9.6 of Verbeek (2004). The
variables used are m (the log of real money stock M1), infl (inflation), cpr (the commercial paper
rate), y (log of real GDP) and tbr (the Treasury bill rate).2
Estimation of β can be performed via the commands
open money.gdt
smpl 1954:1 1994:4
vecm 6 2 m infl cpr y tbr --rc
and the relevant portion of the output reads
Maximum likelihood estimates, observations 1954:1-1994:4 (T = 164)

Cointegration rank = 2
Case 2: Restricted constant
beta (cointegrating vectors, standard errors in parentheses)
m 1.0000 0.0000
(0.0000) (0.0000)
infl 0.0000 1.0000
(0.0000) (0.0000)
cpr 0.56108 -24.367
(0.10638) (4.2113)
y -0.40446 -0.91166
(0.10277) (4.0683)
tbr -0.54293 24.786
(0.10962) (4.3394)
const -3.7483 16.751
(0.78082) (30.909)
Interpretation of the coefficients of the cointegration matrix β would be easier if a meaning could
be attached to each of its columns. This is possible by hypothesizing the existence of two long-run
relationships: a money demand equation
m = c1 + β1 infl + β2 y + β3 tbr
and a risk premium equation
cpr = c2 + β4 infl + β5 y + β6 tbr
2 This data set is available in the verbeek data package; see http://gretl.sourceforge.net/gretl_data.html.
which imply that the cointegration matrix can be normalized as

 
−1 0
 
 β1 β4 
 
 0 −1 
 
β=  
 β2 β5 

 
 β3 β6 
 
c1 c2
This renormalization can be accomplished by means of the restrict command, to be given after
the vecm command or, in the graphical interface, by selecting the “Test, Linear Restrictions” menu
entry. The syntax for entering the restrictions should be fairly obvious:3
restrict
b[1,1] = -1
b[1,3] = 0
b[2,1] = 0
b[2,3] = -1
end restrict
which produces
Cointegrating vectors (standard errors in parentheses)
m -1.0000 0.0000
(0.0000) (0.0000)
infl -0.023026 0.041039
(0.0054666) (0.027790)
cpr 0.0000 -1.0000
(0.0000) (0.0000)
y 0.42545 -0.037414
(0.033718) (0.17140)
tbr -0.027790 1.0172
(0.0045445) (0.023102)
const 3.3625 0.68744
(0.25318) (1.2870)
33.6 Over-identifying restrictions

One purpose of imposing restrictions on a VECM system is simply to achieve identification. If these
restrictions are simply normalizations, they are not testable and should have no effect on the max-
imized likelihood. In addition, however, one may wish to formulate constraints on β and/or α that
derive from the economic theory underlying the equilibrium relationships; substantive restrictions
of this sort are then testable via a likelihood-ratio statistic.
Gretl is capable of testing general linear restrictions of the form
Rb vec(β) = q (33.5)
and/or
Ra vec(α) = 0 (33.6)
Note that the β restriction may be non-homogeneous (q ≠ 0) but the α restriction must be homoge-
neous. Nonlinear restrictions are not supported, and neither are restrictions that cross between β
3 Note that in this context we are bending the usual matrix indexation convention, using the leading index to refer to
the column of β (the particular cointegrating vector). This is standard practice in the literature, and defensible insofar as
it is the columns of β (the cointegrating relations or equilibrium errors) that are of primary interest.
and α. When r > 1, such restrictions may be in common across all the columns of β (or α) or may
be specific to certain columns of these matrices. For useful discussions of this point see Boswijk
(1995) and Boswijk and Doornik (2004), section 4.4.
The restrictions (33.5) and (33.6) may be written in explicit form as
vec(β) = Hφ + h0 (33.7)
and
vec(α′ ) = Gψ (33.8)
respectively, where φ and ψ are the free parameter vectors associated with β and α respectively.
We may refer to the free parameters collectively as θ (the column vector formed by concatenating
φ and ψ). Gretl uses this representation internally when testing the restrictions.
If the list of restrictions that is passed to the restrict command contains more constraints than
necessary to achieve identification, then an LR test is performed. In addition, the restrict com-
mand can be given the --full switch, in which case full estimates for the restricted system are
printed (including the Γi terms) and the system thus restricted becomes the “current model” for
the purposes of further tests. Thus you are able to carry out cumulative tests, as in Chapter 7 of
Johansen (1995).
Syntax
The full syntax for specifying the restriction is an extension of that exemplified in the previous
section. Inside a restrict. . . end restrict block, valid statements are of the form
parameter linear combination = scalar
where a parameter linear combination involves a weighted sum of individual elements of β or α

(but not both in the same combination); the scalar on the right-hand side must be 0 for combina-
tions involving α, but can be any real number for combinations involving β. Below, we give a few
examples of valid restrictions:
b[1,1] = 1.618
b[1,4] + 2*b[2,5] = 0
a[1,3] = 0
a[1,1] - a[1,2] = 0
Special syntax is used when a certain constraint should be applied to all columns of β: in this case,
one index is given for each b term, and the square brackets are dropped. Hence, the following
syntax
restrict
b1 + b2 = 0
end restrict
corresponds to
 
β11 β21
 −β11 −β21 
 
β=
 β

 13 β23 

β14 β24
The same convention is used for α: when only one index is given for an “a” term the restriction is
presumed to apply to all r columns of α, or in other words the variable associated with the given
row of α is weakly exogenous. For instance, the formulation
restrict
a3 = 0
a4 = 0
end restrict
specifies that variables 3 and 4 do not respond to the deviation from equilibrium in the previous
period.4
A variant on the single-index syntax for common restrictions on α and β is available: you can
replace the index number with the name of the corresponding variable, in square brackets. For
example, instead of a3 = 0 one could write a[cpr] = 0, if the third variable in the system is
named cpr.
Finally, a shortcut (or anyway an alternative) is available for setting up complex restrictions (but
currently only in relation to β): you can specify Rb and q, as in Rb vec(β) = q, by giving the names
of previously defined matrices. For example,
matrix I4 = I(4)
matrix vR = I4**(I4~zeros(4,1))
matrix vq = mshape(I4,16,1)
restrict
R = vR
q = vq
end restrict
which manually imposes Phillips normalization on the β estimates for a system with cointegrating
rank 4.
There are two points to note in relation to this option. First, vec(β) is taken to include the coeffi-
cients on all terms within the cointegration space, including the restricted constant or trend, if any,
as well as any restricted exogenous variables. Second, it is acceptable to give an R matrix with a
number of columns equal to the number of rows of β; this variant is taken to specify a restriction
that is in common across all the columns of β.
An example
Brand and Cassola (2004) propose a money demand system for the Euro area, in which they postu-
late three long-run equilibrium relationships:
money demand m = βl l + βy y
Fisher equation π = φl
Expectation theory of l=s
interest rates
where m is real money demand, l and s are long- and short-term interest rates, y is output and
π is inflation.5 (The names for these variables in the gretl data file are m_p, rl, rs, y and infl,
respectively.)
The cointegration rank assumed by the authors is 3 and there are 5 variables, giving 15 elements
in the β matrix. 3 × 3 = 9 restrictions are required for identification, and a just-identified system
would have 15 − 9 = 6 free parameters. However, the postulated long-run relationships feature
only three free parameters, so the over-identification rank is 3.
4 Note that when two indices are given in a restriction on α the indexation is consistent with that for β restrictions:
the leading index denotes the cointegrating vector and the trailing index the equation number.
5 A traditional formulation of the Fisher equation would reverse the roles of the variables in the second equation,
but this detail is immaterial in the present context; moreover, the expectation theory of interest rates implies that the
third equilibrium relationship should include a constant for the liquidity premium. However, since in this example the
system is estimated with the constant term unrestricted, the liquidity premium gets absorbed into the system intercept
and disappears from zt .
Listing 33.1: Estimation of a money demand system with constraints on β [Download ▼]

Input:
open brand_cassola.gdt
# perform a few transformations

m_p = m_p*100
y = y*100
infl = infl/4
rs = rs/4
rl = rl/4
# replicate table 4, page 824

vecm 2 3 m_p infl rl rs y -q
ll0 = $lnl
restrict --full
b[1,1] = 1
b[1,2] = 0
b[1,4] = 0
b[2,1] = 0
b[2,2] = 1
b[2,4] = 0
b[2,5] = 0
b[3,1] = 0
b[3,2] = 0
b[3,3] = 1
b[3,4] = -1
b[3,5] = 0
end restrict
ll1 = $rlnl
Partial output:
Unrestricted loglikelihood (lu) = 116.60268
Restricted loglikelihood (lr) = 115.86451
2 * (lu - lr) = 1.47635
P(Chi-Square(3) > 1.47635) = 0.68774
beta (cointegrating vectors, standard errors in parentheses)
m_p 1.0000 0.0000 0.0000

(0.0000) (0.0000) (0.0000)
infl 0.0000 1.0000 0.0000
(0.0000) (0.0000) (0.0000)
rl 1.6108 -0.67100 1.0000
(0.62752) (0.049482) (0.0000)
rs 0.0000 0.0000 -1.0000
(0.0000) (0.0000) (0.0000)
y -1.3304 0.0000 0.0000
(0.030533) (0.0000) (0.0000)
Listing 33.1 replicates Table 4 on page 824 of the Brand and Cassola article.6 Note that we use
the $lnl accessor after the vecm command to store the unrestricted log-likelihood and the $rlnl
accessor after restrict for its restricted counterpart.
The example continues in script 33.2, where we perform further testing to check whether (a) the
income elasticity in the money demand equation is 1 (βy = 1) and (b) the Fisher relation is homo-
geneous (φ = 1). Since the --full switch was given to the initial restrict command, additional
restrictions can be applied without having to repeat the previous ones. (The second script contains
a few printf commands, which are not strictly necessary, to format the output nicely.) It turns out
that both of the additional hypotheses are rejected by the data, with p-values of 0.002 and 0.004.
Listing 33.2: Further testing of money demand system

Input:
restrict
b[1,5] = -1
end restrict
ll_uie = $rlnl
restrict
b[2,3] = -1
end restrict
ll_hfh = $rlnl
# replicate table 5, page 824

printf "Testing zero restrictions in cointegration space:\n"
printf " LR-test, rank = 3: chi^2(3) = %6.4f [%6.4f]\n", 2*(ll0-ll1), \
pvalue(X, 3, 2*(ll0-ll1))
printf "Unit income elasticity: LR-test, rank = 3:\n"

printf " chi^2(4) = %g [%6.4f]\n", 2*(ll0-ll_uie), \
pvalue(X, 4, 2*(ll0-ll_uie))
printf "Homogeneity in the Fisher hypothesis:\n"

printf " LR-test, rank = 3: chi^2(4) = %6.3f [%6.4f]\n", 2*(ll0-ll_hfh), \
pvalue(X, 4, 2*(ll0-ll_hfh))
Output:
Testing zero restrictions in cointegration space:
LR-test, rank = 3: chi^2(3) = 1.4763 [0.6877]
Unit income elasticity: LR-test, rank = 3:
chi^2(4) = 17.2071 [0.0018]
Homogeneity in the Fisher hypothesis:
LR-test, rank = 3: chi^2(4) = 15.547 [0.0037]
Another type of test that is commonly performed is the “weak exogeneity” test. In this context, a
variable is said to be weakly exogenous if all coefficients on the corresponding row in the α matrix
are zero. If this is the case, that variable does not adjust to deviations from any of the long-run
equilibria and can be considered an autonomous driving force of the whole system.
The code in Listing 33.3 performs this test for each variable in turn, thus replicating the first
column of Table 6 on page 825 of Brand and Cassola (2004). The results show that weak exogeneity
might perhaps be accepted for the long-term interest rate and real GDP (p-values 0.07 and 0.08
respectively).
6 Modulo what appear to be a few typos in the article.

Listing 33.3: Testing for weak exogeneity

Input:
restrict
a1 = 0
end restrict
ts_m = 2*(ll0 - $rlnl)
restrict
a2 = 0
end restrict
ts_p = 2*(ll0 - $rlnl)
restrict
a3 = 0
end restrict
ts_l = 2*(ll0 - $rlnl)
restrict
a4 = 0
end restrict
ts_s = 2*(ll0 - $rlnl)
restrict
a5 = 0
end restrict
ts_y = 2*(ll0 - $rlnl)
loop foreach i m p l s y
printf "Delta $i\t%6.3f [%6.4f]\n", ts_$i, pvalue(X, 6, ts_$i)
endloop
Output (variable, LR test, p-value):

Delta m 18.111 [0.0060]
Delta p 21.067 [0.0018]
Delta l 11.819 [0.0661]
Delta s 16.000 [0.0138]
Delta y 11.335 [0.0786]
Identification and testability

One point regarding VECM restrictions that can be confusing at first is that identification (does
the restriction identify the system?) and testability (is the restriction testable?) are quite separate
matters. Restrictions can be identifying but not testable; less obviously, they can be testable but
not identifying.
This can be seen quite easily in relation to a rank-1 system. The restriction β1 = 1 is identifying
(it pins down the scale of β) but, being a pure scaling, it is not testable. On the other hand, the
restriction β1 + β2 = 0 is testable—the system with this requirement imposed will almost certainly
have a lower maximized likelihood—but it is not identifying; it still leaves open the scale of β.
We said above that the number of restrictions must equal at least r 2 , where r is the cointegrating
rank, for identification. This is a necessary and not a sufficient condition. In fact, when r > 1 it can
be quite tricky to assess whether a given set of restrictions is identifying. Gretl uses the method
suggested by Doornik (1995), where identification is assessed via the rank of the information ma-
trix.
It can be shown that for restrictions of the sort (33.7) and (33.8) the information matrix has the
same rank as the Jacobian matrix
h i
J(θ) = (Ip ⊗ β)G : (α ⊗ Ip1 )H
A sufficient condition for identification is that the rank of J(θ) equals the number of free param-
eters. The rank of this matrix is evaluated by examination of its singular values at a randomly
selected point in the parameter space. For practical purposes we treat this condition as if it were
both necessary and sufficient; that is, we disregard the special cases where identification could be
achieved without this condition being met.7
33.7 Numerical solution methods

In general, the ML estimator for the restricted VECM problem has no closed-form solution, hence
the maximum must be found via numerical methods.8 In some cases convergence may be difficult,
and gretl provides several choices to solve the problem.
Switching and LBFGS

Two maximization methods are available in gretl. The default is the switching algorithm set out
in Boswijk and Doornik (2004). The alternative is a limited-memory variant of the BFGS algorithm
(LBFGS), using analytical derivatives. This is invoked using the --lbfgs flag with the restrict
command.
The switching algorithm works by explicitly maximizing the likelihood at each iteration, with re-
spect to φ̂, ψ̂ and Ω̂ (the covariance matrix of the residuals) in turn. This method shares a feature
with the basic Johansen eigenvalues procedure, namely, it can handle a set of restrictions that does
not fully identify the parameters.
LBFGS, on the other hand, requires that the model be fully identified. When using LBFGS, therefore,
you may have to supplement the restrictions of interest with normalizations that serve to identify
the parameters. For example, one might use all or part of the Phillips normalization (see section
33.5).
Neither the switching algorithm nor LBFGS is guaranteed to find the global ML solution.9 The
7 See Boswijk and Doornik (2004), pp. 447–8 for discussion of this point.
8 The exception is restrictions that are homogeneous, common to all β or all α (in case r > 1), and involve either β
only or α only. Such restrictions are handled via the modified eigenvalues method set out by Johansen (1995). We solve
directly for the ML estimator, without any need for iterative methods.
9 In developing gretl’s VECM-testing facilities we have considered a fair number of “tricky cases” from various sources.
We’d like to thank Luca Fanelli of the University of Bologna and Sven Schreiber of Goethe University Frankfurt for their
help in devising torture-tests for gretl’s VECM code.
optimizer may end up at a local maximum (or, in the case of the switching algorithm, at a saddle
point).
The solution (or lack thereof) may be sensitive to the initial value selected for θ. By default, gretl
selects a starting point using a deterministic method based on Boswijk (1995), but two further
options are available: the initialization may be adjusted using simulated annealing, or the user may
supply an explicit initial value for θ.
The default initialization method is:
1. Calculate the unrestricted ML β̂ using the Johansen procedure.
2. If the restriction on β is non-homogeneous, use the method proposed by Boswijk:
φ0 = −[(Ir ⊗ β̂⊥ )′ H]+ (Ir ⊗ β̂⊥ )′ h0 (33.9)
where β̂′⊥ β̂ = 0 and A+ denotes the Moore–Penrose inverse of A. Otherwise
φ0 = (H ′ H)−1 H ′ vec(β̂) (33.10)
3. vec(β0 ) = Hφ0 + h0 .
4. Calculate the unrestricted ML α̂ conditional on β0 , as per Johansen:
α̂ = S01 β0 (β′0 S11 β0 )−1 (33.11)
5. If α is restricted by vec(α′ ) = Gψ, then ψ0 = (G′ G)−1 G′ vec(α̂′ ) and vec(α0′ ) = Gψ0 .
Alternative initialization methods

As mentioned above, gretl offers the option of adjusting the initialization using simulated anneal-
ing. This is invoked by adding the --jitter option to the restrict command.
The basic idea is this: we start at a certain point in the parameter space, and for each of n iterations
(currently n = 4096) we randomly select a new point within a certain radius of the previous one,
and determine the likelihood at the new point. If the likelihood is higher, we jump to the new point;
otherwise, we jump with probability P (and remain at the previous point with probability 1 − P ). As
the iterations proceed, the system gradually “cools” — that is, the radius of the random perturbation
is reduced, as is the probability of making a jump when the likelihood fails to increase.
In the course of this procedure many points in the parameter space are evaluated, starting with the
point arrived at by the deterministic method, which we’ll call θ0 . One of these points will be “best”
in the sense of yielding the highest likelihood: call it θ ∗ . This point may or may not have a greater
likelihood than θ0 . And the procedure has an end point, θn , which may or may not be “best”.
The rule followed by gretl in selecting an initial value for θ based on simulated annealing is this: use
θ ∗ if θ ∗ > θ0 , otherwise use θn . That is, if we get an improvement in the likelihood via annealing,
we make full use of this; on the other hand, if we fail to get an improvement we nonetheless allow
the annealing to randomize the starting point. Experiments indicate that the latter effect can be
helpful.
Besides annealing, a further alternative is manual initialization. This is done by passing a prede-
fined vector to the set command with parameter initvals, as in
set initvals myvec
The details depend on whether the switching algorithm or LBFGS is used. For the switching algo-
rithm, there are two options for specifying the initial values. The more user-friendly one (for most
people, we suppose) is to specify a matrix that contains vec(β) followed by vec(α). For example:
open denmark.gdt
vecm 2 1 LRM LRY IBO IDE --rc --seasonals
matrix BA = {1, -1, 6, -6, -6, -0.2, 0.1, 0.02, 0.03}

set initvals BA
restrict
b[1] = 1
b[1] + b[2] = 0
b[3] + b[4] = 0
end restrict
In this example—from Johansen (1995) — the cointegration rank is 1 and there are 4 variables.
However, the model includes a restricted constant (the --rc flag) so that β has 5 elements. The α
matrix has 4 elements, one per equation. So the matrix BA may be read as
(β1 , β2 , β3 , β4 , β5 , α1 , α2 , α3 , α4 )
The other option, which is compulsory when using LBFGS, is to specify the initial values in terms
of the free parameters, φ and ψ. Getting this right is somewhat less obvious. As mentioned above,
the implicit-form restriction Rvec(β) = q has explicit form vec(β) = Hφ + h0 , where H = R⊥ , the
right nullspace of R. The vector φ is shorter, by the number of restrictions, than vec(β). The
savvy user will then see what needs to be done. The other point to take into account is that if α is
unrestricted, the effective length of ψ is 0, since it is then optimal to compute α using Johansen’s
formula, conditional on β (equation 33.11 above). The example above could be rewritten as:
open denmark.gdt
vecm 2 1 LRM LRY IBO IDE --rc --seasonals
matrix phi = {-8, -6}

set initvals phi
restrict --lbfgs
b[1] = 1
b[1] + b[2] = 0
b[3] + b[4] = 0
end restrict
In this more economical formulation the initializer specifies only the two free parameters in φ (5
elements in β minus 3 restrictions). There is no call to give values for ψ since α is unrestricted.
Scale removal
Consider a simpler version of the restriction discussed in the previous section, namely,
restrict
b[1] = 1
b[1] + b[2] = 0
end restrict
This restriction comprises a substantive, testable requirement — that β1 and β2 sum to zero — and
a normalization or scaling, β1 = 1. The question arises, might it be easier and more reliable to
maximize the likelihood without imposing β1 = 1?10 If so, we could record this normalization,
remove it for the purpose of maximizing the likelihood, then reimpose it by scaling the result.
Unfortunately it is not possible to say in advance whether “scale removal” of this sort will give
better results for any particular estimation problem. However, this does seem to be the case more
often than not. Gretl therefore performs scale removal where feasible, unless you
10 As a numerical matter, that is. In principle this should make no difference.
• explicitly forbid this, by giving the --no-scaling option flag to the restrict command; or
• provide a specific vector of initial values; or
• select the LBFGS algorithm for maximization.
Scale removal is deemed infeasible if there are any cross-column restrictions on β, or any non-
homogeneous restrictions involving more than one element of β.
In addition, experimentation has suggested to us that scale removal is inadvisable if the system is
just identified with the normalization(s) included, so we do not do it in that case. By “just identified”
we mean that the system would not be identified if any of the restrictions were removed. On that
criterion the above example is not just identified, since the removal of the second restriction would
not affect identification; and gretl would in fact perform scale removal in this case unless the user
specified otherwise.
Chapter 34
Multivariate models
By a multivariate model we mean one that includes more than one dependent variable. Certain
specific types of multivariate model for time-series data are discussed elsewhere: chapter 32 deals
with VARs and chapter 33 with VECMs. Here we discuss two general sorts of multivariate model,
implemented in gretl via the system command: SUR systems (Seemingly Unrelated Regressions),
in which all the regressors are taken to be exogenous and interest centers on the covariance of the
error term across equations; and simultaneous systems, in which some regressors are assumed to
be endogenous.
In this chapter we give an account of the syntax and use of the system command and its compan-
ions, restrict and estimate; we also explain the options and accessors available in connection
with multivariate models.
34.1 The system command

The specification of a multivariate system takes the form of a block of statements, starting with
system and ending with end system. Once a system is specified it can estimated via various
methods, using the estimate command, with or without restrictions, which may be imposed via
the restrict command.
Starting a system block

The first line of a system block may be augmented in either (or both) of two ways:
• An estimation method is specified for the system. This is done by following system with
an expression of the form method=estimator, where estimator must be one of ols (Ordinary
Least Squares), tsls (Two-Stage Least Squares), sur (Seemingly Unrelated Regressions), 3sls
(Three-Stage Least Squares), liml (Limited Information Maximum Likelihood) or fiml (Full
Information Maximum Likelihood). Two examples:
system method=sur
system method=fiml
OLS, TSLS and LIML are, of course, single-equation methods rather than true system estima-
tors; they are included to facilitate comparisons.
• The system is assigned a name. This is done by giving the name first, followed by a back-
arrow, “<-”, followed by system. If the name contains spaces it must be enclosed in double-
quotes. Here are two examples:
sys1 <- system

"System 1" <- system
Note, however, that this naming method is not available within a user-defined function, only
in the main body of a gretl script.
If the initial system line is augmented in the first way, the effect is that the system is estimated as
soon as its definition is completed, using the specified method. The effect of the second option is
322
Chapter 34. Multivariate models 323
that the system can then be referenced by the assigned name for the purposes of the restrict and
estimate commands; in the gretl GUI an additional effect is that an icon for the system is added
to the “Session view”.
These two possibilities can be combined, as in
mysys <- system method=3sls
In this example the system is estimated immediately via Three-Stage Least Squares, and is also
available for subsequent use under the name mysys.
If the system is not named via the back-arrow mechanism, it is still available for subsequent use
via restrict and estimate; in this case you should use the generic name $system to refer to the
last-defined multivariate system.
The body of a system block

The most basic element in the body of a system block is the equation statement, which is used
to specify each equation within the system. This takes the same form as the regression specifica-
tion for single-equation estimators, namely a list of series with the dependent variable given first,
followed by the regressors, with the series given either by name or by ID number (order in the
dataset). A system block must contain at least two equation statements, and for systems without
endogenous regressors these statements are all that is required. So, for example, a minimal SUR
specification might look like this:
system method=sur
equation y1 const x1
equation y2 const x2
end system
For simultaneous systems it is necessary to determine which regressors are endogenous and which
exogenous. By default all regressors are treated as exogenous, except that any variable that appears
as the dependent variable in one equation is automatically treated as endogeous if it appears as a
regressor elsewhere. However, an explicit list of endogenous regressors may be supplied follow-
ing the equations lines: this takes the form of the keyword endog followed by the names or ID
numbers of the relevant regressors.
When estimation is via TSLS or 3SLS it is possible to specify a particular set of instruments for each
equation. This is done by giving the equation lists in the format used with the tsls command:
first the dependent variable, then the regressors, then a semicolon followed by the instruments, as
in
system method=3sls
equation y1 const x11 x12 ; const x11 z1
equation y2 const x21 x22 ; const x21 z2
end system
An alternative way of specifying instruments is to insert an extra line starting with instr, followed
by the list of variables acting as instruments. This is especially useful for specifying the system with
the equations keyword; see the following subsection. As in tsls, any regressors that are not also
listed as instruments are treated as endogenous, so in the example above x11 and x21 are treated
as exogenous while x21 and x22 are endogenous, and instrumented by z1 and z2 respectively.
One more sort of statement is allowed in a system block: that is, the keyword identity followed by
an equation that defines an accounting relationship, rather then a stochastic one, between variables.
For example,
identity Y = C + I + G + X
There can be more than one identity in a system block. But note that these statements are specific
to estimation via FIML; they are ignored for other estimators.
34.2 Equation systems within functions

It is also possible to define a multivariate system in a programmatic way. This is useful if the precise
specification of the system depends on some input parameters that are not known in advance, but
are given when the script is actually run.
The relevant syntax is given by the equations keyword (note the plural), which replaces the block
of equation lines in the standard form. This keyword must be followed by two arguments. The
first is a named list containing all series on the left-hand side of the system, which determines the
number of equations in the system. The nature of the second argument depends on whether or not
the list of regressors is in common for all equations (as in SUR):
• Common regressors: a second named list.
• Differing regressors: an array of lists, one per equation.
The first case is straightforward; the second requires a little more explanation. Suppose we have a
two-equation system with regressors given by the lists xlist1 and xlist2. We can then define a
suitable array as follows:
lists Xlists = defarray(xlist1, xlist2)
(See section 11.8 for alternative ways of building an array.)

Therefore, specifying a system generically in this way just involves building the necessary list
arguments, as shown in the following example:
open denmark
list LHS = LRM LRY
list RHS1 = const LRM(-1) IBO(-1) IDE(-1)
list RHS2 = const LRY(-1) IBO(-1)
lists RHS = defarray(RHS1, RHS2)
system method=ols
equations LHS RHS
end system
As mentioned above, the option of assigning a specific name to a system is not available within
functions, but the generic identifier $system can be used to similar effect. The following example
illustrates how one can define a system, estimate it via two methods, apply a restriction, then
re-estimate it subject to the restriction.
function void anonsys(series x, series y)

system
equation x const
equation y const
end system
estimate $system method=ols
estimate $system method=sur
restrict $system
b[1,1] - b[2,1] = 0
end restrict
estimate $system method=ols
end function
34.3 Restriction and estimation

The behavior of the restrict command is a little different for multivariate systems as compared
with single-equation models.
In the single-equation case, restrict refers to the last-estimated model, and once the command is
completed the restriction is tested. In the multivariate case, you must give the name of the system
to which the restriction is to be applied (or $system to refer to the last-defined system), and the
effect of the command is just to attach the restriction to the system; testing is not done until the
next estimate command is given. In addition, in the system case the default is to produce full
estimates of the restricted model; if you are not interested in the full estimates and just want the
test statistic you can append the --quiet option to estimate.
A given system restriction remains in force until it is replaced or removed. To return a system to
its unrestricted state you can give an empty restrict block, as in
restrict sysname
end restrict
As illustrated above, you can use the method tag to specify an estimation method with the estimate
command. If the system has already been estimated you can omit this tag and the previous method
is used again.
The estimate command is the main locus for options regarding the details of estimation. The
available options are as follows:
• If the estimation method is SUR or 3SLS and the --iterate flag is given, the estimator will be
iterated. In the case of SUR, if the procedure converges the results are maximum likelihood
estimates. Iteration of three-stage least squares, however, does not in general converge on the
full-information maximum likelihood results. This flag is ignored for other estimators.
• If the equation-by-equation estimators OLS or TSLS are chosen, the default is to apply a de-
grees of freedom correction when calculating standard errors. This can be suppressed using
the --no-df-corr flag. This flag has no effect with the other estimators; no degrees of free-
dom correction is applied in any case.
• By default, the formula used in calculating the elements of the cross-equation covariance
matrix is
û′ ûj
σ̂ij = i
T
where T is the sample size and ûi is the vector of residuals from equation i. But if the
--geomean flag is given, a degrees of freedom correction is applied: the formula is
û′i ûj
σ̂ij = q
(T − ki )(T − kj )
where ki denotes the number of independent parameters in equation i.
• If an iterative method is specified, the --verbose option calls for printing of the details of
the iterations.
• When the system estimator is SUR or 3SLS the cross-equation covariance matrix is initially
estimated via OLS or TSLS, respectively. In the case of a system subject to restrictions the
question arises: should the initial single-equation estimator be restricted or unrestricted?
The default is the former, but the --unrestrict-init flag can be used to select unrestricted
initialization. (Note that this is unlikely to make much difference if the --iterate option is
given.)
34.4 System accessors

After system estimation various matrices may be retrieved for further analysis. Let g denote the
numberP of equations in the system and let K denote the total number of estimated parameters
(K = i ki ). The accessors $uhat and $yhat get T × g matrices holding the residuals and fitted
values respectively. The accessor $coeff gets the stacked K-vector of parameter estimates; $vcv
gets the K ×K variance matrix of the parameter estimates; and $sigma gets the g ×g cross-equation
covariance matrix, Σ̂.
A test statistic for the hypothesis that Σ is diagonal can be retrieved as $diagtest and its p-value
as $diagpval. This is the Breusch–Pagan test except when the estimator is (unrestricted) iterated
SUR, in which case it’s a Likelihood Ratio test. The Breusch–Pagan test is computed as
g i−1
X X
2
LM = T rij
i=2 j=1
q
where rij = σ̂ij / σ̂ii σ̂jj ; the LR test is
 
g
X
LR = T  log σ̂i2 − log |Σ̂|
i=1
where σ̂i2 is û′i ûi /T from the individual OLS regressions. In both cases the test statistic is dis-
tributed asymptotically as χ 2 with g(g − 1)/2 degrees of freedom.
All these quantities can also be retrieved if necessary via the $system accessor: after successful
completion of the estimation procedure, il will contains a bundle holding various quantities that
describe the estimated system.
Structural and reduced forms for forecasting and simulation

Systems of simultaneous systems can be represented in structural form as
Γ yt = A1 yt−1 + A2 yt−2 + · · · + Ap yt−p + Bxt + ϵt
where yt represents the vector of endogenous variables in period t, xt denotes the vector of ex-
ogenous variables, and p is the maximum lag of the endogenous regressors. The structural-form
matrices can be retrieved as $sysGamma, $sysA and $sysB respectively, or as elements of the re-
turned $system bundle. If yt is m × 1 and xt is n × 1, then Γ is m × m and B is m × n. If the
system contains no lags of the endogenous variables then the A matrix is not defined, otherwise A
is the horizontal concatenation of A1 , . . . , Ap , and is therefore m × mp.
From the structural form it is straightforward to obtain the reduced form, namely,
 
p
X
−1
yt = Γ  Ai yt−i  + Γ −1 Bxt + vt (34.1)
i=1
where vt ≡ Γ −1 ϵt .
As is well known, the reduced form can be used any time one has to calculate the values of the
endogenous variables given the exogenous ones; this is typically necessary in two cases: forecasting
or simulation.
Forecasts for multi-equation systems are generated natively by gretl in response to the fcast com-
mand. This means that—in contrast to single-equation estimation — the values produced via fcast
for a static, within-sample forecast will in general differ from the fitted values retrieved via $yhat.
The fitted values for equation i represent the expectation of yti conditional on the contempora-
neous values of all the regressors, while the fcast values are conditional on the exogenous and
predetermined variables only.
The above account has to be qualified for the case where a system is set up for estimation via TSLS
or 3SLS using a specific list of instruments per equation, as described in section 34.1. In that case
it is possible to include more endogenous regressors than explicit equations (although, of course,
there must be sufficient instruments to achieve identification). In such systems endogenous re-
gressors that have no associated explicit equation are treated “as if” exogenous when constructing
the structural-form matrices. This means that forecasts are conditional on the observed values of
the “extra” endogenous regressors rather than solely on the values of the exogenous and predeter-
mined variables.
On the contrary, gretl does not provide a native command for generating simulated data from a
multi-equation system, but this is relatively easily accomplished by means of scripting: script 34.1
gives an example on a 3-variable system.1 All equations contain lagged endogenous variables, but
the equation for consumption at time t also contains income at time t as an explanatory variable.
This makes the system simultaneous, so we use FIML as the estimation method.
Once the system is estimated, we store its results to a bundle named sys, so as to make it easier to
retrieve certain quantities used in the remainder of the script.
First, we compute the reduced form matrices by using the Gamma, A and B bundle elements. Of
course, simulation needs values for the exogenous variable, which are easy to create in a system
such as this where all the exogenous variables are deterministic. The simulation horizon is set for
this example at 12 periods.
Subsequently, structural-form disturbances are drawn randomly from a multivariate normal dis-
tibution with mean 0 and variance equal to the estimated covariance matrix Σ̂, available as the
sigma element of the sys bundle. These are then mapped to reduced-form innovations via the
relationship vt ≡ Γ −1 ϵt .
Finally, all these ingredients are combined to produce the simulated values with the varsimul
function. Note that initial values for the VAR recursion are taken from the latest available data.
Running the script should produce the following set of simulated values:
Sim (14 x 3)
13.887 12.874 14.508

13.889 12.877 14.515
13.893 12.880 14.520
13.895 12.885 14.518
13.895 12.894 14.517
13.900 12.902 14.520
13.907 12.908 14.525
13.917 12.910 14.534
13.920 12.911 14.539
13.919 12.906 14.547
13.934 12.910 14.567
13.935 12.908 14.575
13.942 12.913 14.581
13.944 12.916 14.583
1 Note: the system of equations that is being estimated here is not meant to stand for a realistic model of the European
economy. It is just set up in such a way to provide a simple example.

Listing 34.1: Simulation from a simultaneous equation system [Download ▼]
set verbose off

set seed 131020
### --------------------------------------------------
### load the data and generate the variables
### --------------------------------------------------
open AWM18.gdt --quiet

Con = log(PCR)
Inv = log(GCR)
Inc = log(YER)
list EXO = const time
### --------------------------------------------------
### estimate the system via FIML
### --------------------------------------------------
system method=fiml
equation Con EXO Con(-1) Inc(0 to -1)
equation Inv EXO Inv(-1) Inc(-1)
equation Inc EXO Inc(-1 to -2) Inv(-1)
end system
bundle sys = $system # save the estimated system to a bundle
### --------------------------------------------------
### compute the reduced form VAR representation
### --------------------------------------------------
matrix iG = inv(sys.Gamma)
matrix rfA = iG * sys.A
matrix rfB = iG * sys.B
### --------------------------------------------------
### produce the simulation
### --------------------------------------------------
scalar horizon = 12
### retrieve a few magnitudes from the estimated system

scalar g = sys.neqns # number of equations
scalar p = cols(sys.A) / g # maximum lag
### future values of the exogenous variable

matrix SimExo = 1 ~ seq($nobs + 1, $nobs + horizon)’
matrix X = SimExo * rfB’
### simulated disturbances

E = mnormal(horizon, g) * cholesky(sys.sigma)’ # reduced form disturbances
V = E * iG’ # structural form disturbances
### initial values

list ENDO = Con Inv Inc
matrix init = {ENDO}[$nobs-p+1:,]
### perform simulation

Sim = varsimul(rfA, X + V, init)
print Sim
Chapter 35
Forecasting
35.1 Introduction
In some econometric contexts forecasting is the prime objective: one wants estimates of the future
values of certain variables to reduce the uncertainty attaching to current decision making. In other
contexts where real-time forecasting is not the focus prediction may nonetheless be an important
moment in the analysis. For example, out-of-sample prediction can provide a useful check on
the validity of an econometric model. In other cases we are interested in questions of “what if”:
for example, how might macroeconomic outcomes have differed over a certain period if a different
policy had been pursued? In the latter cases “prediction” need not be a matter of actually projecting
into the future but in any case it involves generating fitted values from a given model. The term
“postdiction” might be more accurate but it is not commonly used; we tend to talk of prediction
even when there is no true forecast in view.
This chapter offers an overview of the methods available within gretl for forecasting or prediction
(whether forward in time or not) and explicates some of the finer points of the relevant commands.
35.2 Saving and inspecting fitted values

In the simplest case, the “predictions” of interest are just the (within sample) fitted values from an
econometric model. For the single-equation linear model, yt = Xt β + ut , these are ŷt = Xt β̂.
In command-line mode, the ŷ series can be retrieved, after estimating a model, using the accessor
$yhat, as in
series yh = $yhat
If the model in question takes the form of a system of equations, $yhat returns a matrix, each
column of which contains the fitted values for a particular dependent variable. To extract the fitted
series for, e.g., the dependent variable in the second equation, do
matrix Yh = $yhat
series yh2 = Yh[,2]
Having obtained a series of fitted values, you can use the fcstats function to produce a vector of
statistics that characterize the accuracy of the predictions (see section 35.4 below).
The gretl GUI offers several ways of accessing and examining within-sample predictions. In the
model display window the Save menu contains an item for saving fitted values, the Graphs menu
allows plotting of fitted versus actual values, and the Analysis menu offers a display of actual, fitted
and residual values.
35.3 The fcast command

The fcast command (and its equivalent GUI invocation, see below) generates predictions based
on the last estimated model. Several questions arise here: How to control the range over which
predictions are generated? How to control the forecasting method (where a choice is available)?
How to control the printing and/or saving of the results? Basic answers can be found in the Gretl
Command Reference; we add some more details here.
329
Chapter 35. Forecasting 330
The forecast range

The range defaults to the currently defined sample range. If this remains unchanged following esti-
mation of the model in question, the forecast will be “within sample” and (with some qualifications
noted below) it will essentially duplicate the information available via the retrieval of fitted values
(see section 35.2 above).
A common situation is that a model is estimated over a given sample and then forecasts are
wanted for a subsequent out-of-sample range. The simplest way to accomplish this is via the
--out-of-sample option to fcast. For example, assuming we have a quarterly time-series dataset
containing observations from 1980:1 to 2008:4, four of which are to be reserved for forecasting:
# reserve the last 4 observations

smpl 1980:1 2007:4
ols y 0 xlist
fcast --out-of-sample
This will generate a forecast from 2008:1 to 2008:4.

There are two other ways of adjusting the forecast range, offering finer control:
• Use the smpl command to adjust the sample range prior to invoking fcast.
• Use the optional startobs and endobs arguments to fcast (which should come right after the
command word). These values set the forecast range independently of the sample range.
What if one wants to generate a true forecast that goes beyond the available data? In that case
one can use the dataset command with the addobs parameter to add extra observations before
forecasting. For example:
# use the entire dataset, which ends in 2008:4

ols y 0 xlist
dataset addobs 4
fcast 2009:1 2009:4
But this will work as stated only if the set of regressors in xlist does not contain any stochastic
regressors other than lags of y. The dataset addobs command attempts to detect and extrapolate
certain common deterministic variables (e.g., time trend, periodic dummy variables). In addition,
lagged values of the dependent variable can be supported via a dynamic forecast (see below for
discussion of the static/dynamic distinction). But “future” values of any other included regressors
must be supplied before such a forecast is possible. Note that specific values in a series can be
set directly by date, for example: x1[2009:1] = 120.5. Or, if the assumption of no change in the
regressors is warranted, one can do something like this:
loop t=2009:1..2009:4
loop foreach i xlist
$i[t] = $i[2008:4]
endloop
endloop
In single-equation OLS models a --recursive forecast option is also available, expanding the es-
timation sample one-by-one and re-calculating the forecasts again and again for the constantly
updated information set. In this case a number must be given of how many periods ahead should
be forecast for each of the estimation samples. Note that only this k-steps-ahead forecast will be
printed (or accessible in $fcast), not the interim values from step 1 through k − 1 (if k > 1). If
those interim values are also needed, then several fcast ... --recursive rounds would have to
be done with different steps-ahead numbers.
Static and dynamic forecasts

The distinction between static and dynamic forecasts applies only to dynamic models, i.e., those
that feature one or more lags of the dependent variable. The simplest case is the AR(1) model,
yt = α0 + α1 yt−1 + ϵt (35.1)
In some cases the presence of a lagged dependent variable is implicit in the dynamics of the error
term, for example
yt = β + ut
ut = ρut−1 + ϵt
which implies that

yt = (1 − ρ)β + ρyt−1 + ϵt
Suppose we want to forecast y for period s using a dynamic model, say (35.1) for example. If
we have data on y available for period s − 1 we could form a fitted value in the usual way: ŷs =
α̂0 + α̂1 ys−1 . But suppose that data are available only up to s − 2. In that case we can apply the
chain rule of forecasting:
ŷs−1 = α̂0 + α̂1 ys−2

ŷs = α̂0 + α̂1 ŷs−1
This is what is called a dynamic forecast. A static forecast, on the other hand, is simply a fitted
value (even if it happens to be computed out-of-sample).
Printing, displaying, and saving forecasts

When working from the GUI, the way to perform and access forecasts is to first estimate a model
with some inherently dynamic features, and then in the model window navigate to the Forecasts
entry in the Analysis menu. If some out-of-sample observations are already available (see above) a
dialog window is presented where the discussed forecasting options can be chosen by pointing and
clicking. Executing the forecasts then automatically yields two result windows: one with a time-
series plot of the forecasts along with their confidence bands (if those were chosen), and another
one with tabular output.
The produced plot can be saved to the current session or exported like any other plot in gretl by
right-clicking. Notice that in the textual result window there is a “+” button at the top which offers
to save the point forecasts and their standard errors as new series to the active dataset.
In a command line context the fcast command automatically prints out the tables with the pro-
duced forecasts, their standard errors, and associated confidence intervals — unless you wish to
suppress this verbose output with the options --stats-only or --quiet. The former option re-
stricts output to the forecast evaluation statistics as explained in the next section; the latter option
silences output altogether. Another accepted syntax variant is to supply the name of a new series
for the point forecasts after the fcast command, as for example in fcast Yfc --out-of-sample.
At the same time this also suppresses printout.
Accessing and saving the produced forecast time series along with the estimated standard errors
also works through the $fcast and $fcse accessors available after fcast execution. These return
vectors as gretl matrix objects, not series, so if you want to add the results to the dataset in this
way you would have to set the active sample to the forecast range first. (You can of course first
access and store the matrices and then later after resetting the sample assign them to series.) Note
that the estimated standard errors do not incorporate parameter uncertainty in the case of dynamic
models.
But if you want to create forecast plots within a script the relevant option already has to be ap-
pended to the fcast command. As explained in the command reference, specify --plot=<filename>
(without the < > symbols) to save the plot file directly to disc, namely by default to the active work-
ing directory if no full path is specified.1
35.4 Univariate forecast evaluation statistics

Let yt be the value of a variable of interest at time t and let ft be a forecast of yt . We define
the forecast error as et = yt − ft . Given a series of T observations and associated forecasts we
can construct several measures of the overall accuracy of the forecasts. Some commonly used
measures are the Mean Error (ME), Root Mean Squared Error (RMSE), Mean Absolute Error (MAE),
Mean Percentage Error (MPE) and Mean Absolute Percentage Error (MAPE). These are defined as
follows. v
T T T
u
1 u1 1 X
X u X
ME = et RMSE = t et2 MAE = |et |
T t=1 T t=1 T t=1
T T

1 X et 1 X e
t
MPE = 100 MAPE = 100
T t=1 yt T t=1 yt
A further relevant statistic is Theil’s U , of which there are two variants: U1 Theil (1961) and U2
(Theil, 1966). The first is defined thus
 0.5  0.5  0.5 −1
T T T
1 X 1 X 1 X
U1 =  (yt − ft )2  ·  yt2  +  ft2  
 
T t=1 T t=1 T t=1
and is bounded by 0 and 1. Value close to zero indicate high forecast accuracy; U1 approaches 1 as
the forecast errors grow arbitrarily large. The second is defined as the positive square root of
T −1
!2  T −1 !2 −1
1 X ft+1 − yt+1 1 X yt+1 − yt
U22 = · 
T t=1 yt T t=1 yt
U2 depends on the data having a natural ordering and is applicable only for time series data. It can
be interpreted as the ratio of the RMSE of the proposed forecasting model to the RMSE of a naïve
model which simply predicts yt+1 = yt for all t. The naïve model yields U2 = 1; values less than 1
indicate an improvement relative to this benchmark and values greater than 1 a deterioration.
In addition, Theil (1966, pp. 33–36) proposed a decomposition of the MSE which can be useful in
evaluating a set of forecasts. He showed that the MSE could be broken down into three non-negative
components as follows
2 2
MSE = f¯ − ȳ + sf − r sy + 1 − r 2 s 2 y
where f¯ and ȳ are the sample means of the forecasts and the observations, sf and sy are the re-
spective standard deviations (using T in the denominator), and r is the sample correlation between
y and f . Dividing through by MSE we get
2 2
f¯ − ȳ sf − r sy 1 − r 2 sy2

+ + =1 (35.2)
MSE MSE MSE
Theil labeled the three terms on the left-hand side of (35.2) the bias proportion (U M ), regression
proportion (U R ) and disturbance proportion (U D ), respectively. If y and f represent the in-sample
observations of the dependent variable and the fitted values from a linear regression then the first
two components, U M and U R , will be zero (apart from rounding error), and the entire MSE will be
accounted for by the unsystematic part, U D . In the case of out-of-sample prediction, however (or
1 Being a single plot, this is currently not available for forecasts based on multiple equation systems. If the path
contains spaces it must be enclosed in quotes.

“prediction” over a sub-sample of the data used in the regression), U M and U R are not necessarily
close to zero. U M differs from zero if and only if the mean of the forecasts differs from the mean of
the realizations, and U R is non-zero if and only if the slope of a simple regression of the realizations
on the forecasts differs from 1.
The above-mentioned statistics are printed as part of the output of the fcast command. They can
also be retrieved in the form of a column vector using the function fcstats, which takes two series
arguments corresponding to y and f . The vector returned is
′
ME RMSE MAE MPE MAPE U U M U R U D
where U is U2 for time series data, U1 otherwise. (Note that the MSE is not included since it can
easily be obtained given the RMSE.) The series given as arguments to fcstats must not contain any
missing values in the current sample range; use the smpl command to adjust the range if needed.
See the Gretl Command Reference for more detail on fcstats.
35.5 Forecasts based on VAR models

The interface for forecasting from a VAR is similar to that for a single equation. Here’s an example
via scripting. The code:
# open sample data file

open sw_ch14.gdt --quiet
# generate the "inflation" series
series INFL = 100 * sdiff(log(PUNEW))
# put last year aside for out-of-sample forecast
smpl ; -4
# estimate a 5-lag VAR
var 5 LHUR INFL --silent
# store fitted values (note: result is a 2-column matrix)
YH = $yhat
# perform out-of-sample forecast (both versions)
fcast LHUR --static --out-of-sample
# note that omission of the variable specification means "all"
fcast --dynamic --out-of-sample
yields
For 95% confidence intervals, t(140, 0.025) = 1.977
LHUR prediction std. error 95% interval
1999:1 4.300000 4.335004 0.222784 3.894549 - 4.775460

1999:2 4.300000 4.243244 0.222784 3.802788 - 4.683699
1999:3 4.233333 4.290981 0.222784 3.850525 - 4.731436
1999:4 4.100000 4.178030 0.222784 3.737575 - 4.618486
Forecast evaluation statistics
Mean Error -0.028481

Root Mean Squared Error 0.058861
Mean Absolute Error 0.05686
Mean Percentage Error -0.68977
Mean Absolute Percentage Error 1.3497
Theil’s U2 0.75027
Bias proportion, UM 0.23414
Regression proportion, UR 0.0081804
Disturbance proportion, UD 0.75768
For 95% confidence intervals, t(140, 0.025) = 1.977
LHUR prediction std. error 95% interval
1999:1 4.300000 4.335004 0.222784 3.894549 - 4.775460

1999:2 4.300000 4.312724 0.401960 3.518028 - 5.107421
1999:3 4.233333 4.272764 0.539582 3.205982 - 5.339547
1999:4 4.100000 4.223213 0.642001 2.953943 - 5.492482

Theil’s U2 0.87334
INFL prediction std. error 95% interval
1999:1 1.651245 1.812250 0.431335 0.959479 - 2.665022

1999:2 2.048545 2.088185 0.777834 0.550366 - 3.626004
1999:3 2.298952 2.266445 1.075855 0.139423 - 4.393467
1999:4 2.604836 2.610037 1.409676 -0.176969 - 5.397043

Theil’s U2 0.095932
One of the main differences is that specifying a variable name after the fcast command does not
mean to save something under that name, but now it serves to pick one of the N variables of the
VAR for printing out the forecasts. That leaves only the $fcast and $fcse accessors to obtain and
save the produced forecasts—in this system case the returned matrix objects will have as many
columns as equations.
In the GUI the relevant menu entry is again Forecasts in the Analysis menu in the window of the
estimated VAR model. Here the user must pick the variable of interest, after which a dialog window
with relevant options is presented. As in the single-equation context a plot and a textual output
windows are created. Again, forecast series can be added to the dataset through the “+” button,
and the plot can be saved or exported.
Special VAR cases: exogenous variables, cointegration

It may be worth noting that when a VAR is specified with additional (non-deterministic) exogenous
regressors a similar issue as with single equations arises: the forecast is conditional and requires
some assumptions about the development of those regressors out of sample. As before, these
values can be easily filled in after the dataset has been extended with the observations for the fore-
casting sample, but naturally only the user, not gretl, can and must decide what those values should
be. This includes hand-crafted deterministic variables like shift dummies; but on the other hand
standard deterministic terms like trends and seasonals will be extrapolated by gretl automatically.
Using a cointegrated VAR model with gretl’s vecm command does not change the way a forecast
is obtained afterwards. The VECM can be internally represented as a VAR (in levels) that automat-
ically contains the reduced-rank restrictions of cointegration, and this VAR form is then used to
calculate the forecasts. Providing forecast standard errors and the associated confidence bands
is also straightforward since only the innovation uncertainty is captured in those. This ease of
use also carries over to the situation when a VECM with additional exogenous terms is used for
forecasting—provided that future values of the exogenous variables are specified, of course.
35.6 Forecasting from simultaneous systems

To be interesting for a forecasting application, a simultaneous-equation system must be dynamic,
including some lags of endogenous variables as regressors. Otherwise we would be conducting
a scenario analysis purely conditional on assumed exogenous developments. For the following
discussion we therefore presuppose that we are dealing with such a dynamic system. Then the
difference between such a model set up with gretl’s system block and a VAR system concerns
mainly two aspects: First, a VAR model is already given as a so-called reduced form and as such
is ready to be used for forward simulation a.k.a. forecasting. In contrast, a simultaneous system
can come in a structural form with some contemporaneous endogenous variables as regressors in
the equations; the future values of those regressors are unknown, however. Second, a plain VAR
is estimated by OLS, whereas a simultaneous system can be estimated with different methods for
reasons of efficiency.
Neither of these differences present any deep challenge for forecasting, however.
• As explained at the end of the previous chapter on multivariate models (see the subsection
titled “Structural and reduced forms”), it is easy to obtain the reduced form of any such
simultaneous equation system. This reduced form is used by gretl to simulate the system
forward in time, just as with a VAR model. The slight complication for computing the forecast
variances is merely that the estimated error term ϵt from the structural form must be mapped
to the reduced-form innovations vt using the (inverse of the) estimated structural relations
matrix Γ . This is automatically taken into account.
• The estimation method through which the coefficient values of the system are determined
does not matter for forecasting. The prediction algorithm can simply take these point esti-
mates as given, use these for calculating the associated reduced form, and use that represen-
tation to iterate the model forward over the desired forecasting horizon. It should nonetheless
be obvious that different estimators entail different forecast values.
As a consequence of these considerations, the way to handle forecasts from simultaneous systems
in gretl is exactly as discussed before in the context of VARs (possibly with exogenous regressors).
This applies to the command-line interface as well as the GUI.
Chapter 36
State Space Modeling
36.1 Introduction
This chapter describes the handling of linear state space models in gretl 2017a and higher.1 Here
is a brief high-level overview of gretl’s Kalman apparatus.
• To obtain a Kalman structure—in the form of a bundle — you use the ksetup function.
• Having obtained such a bundle you can adjust its contents, as described in detail below.
• You then “do things” with your state space model via the functions kfilter (forecasting)
ksmooth (state smoothing) and/or kdsmooth (disturbance smoothing).
36.2 Notation
In this document our basic representation of a state space model is given by the following pair of
equations:
yt = Zt αt + εt (36.1)
αt+1 = Tt αt + ηt (36.2)
where (36.1) is the observation or measurement equation and (36.2) is the state transition equation.
The state vector, αt , is (r × 1) and the vector of observables, yt , is (n × 1). The (n × 1) vector εt and
the (r × 1) vector ηt are assumed to be vector Gaussian white noise:
E(εt εs′ ) = Σt for t = s, otherwise 0

E(ηt η′s ) = Ωt for t = s, otherwise 0
The number of time-series observations is denoted by N. In the case where Zt = Z, Tt = T , Σt = Σ

and Ωt = Ω for all t the model is said to be time-invariant. We assume time-invariance in much of
what follows but discuss the time-varying case — along with other extensions of the basic model —
in section 36.8.
36.3 Defining the model as a bundle

The ksetup function is used to initialize a state space model, by specifying only its indispensable
elements: the observables and their link to the unobserved state vector, plus the law of motion for
the latter and the covariance matrix of its innovations. Therefore, the function takes a minimum of
four arguments. The corresponding bundle keys are as follows:
1 The user interface was substantially different in earlier versions of gretl. For example, be aware that Lucchetti
(2011) is based on the old syntax. If anyone needs documentation for the original interface it can be found at http:
//gretl.sourceforge.net/papers/kalman_old.pdf.
336
Chapter 36. State Space Modeling 337
Symbol Dimensions Reserved key
y N ×n obsy
Z n×r obsymat
T r ×r statemat
Ω r ×r statevar
☞ Please note that the matrix Z in the observation equation must be given in transposed form. This is
required to preserve compatibility with gretl versions prior to 2022a. Correspondingly, if you retrieve this
matrix using its key, obsymat, it’s the transpose you actually obtain.
The names of these input matrices don’t matter; in fact they may be anonymous matrices con-
structed on the fly. But if and when you wish to copy them out of the bundle, you must use the
specified keys, as in
matrix Z = SSmod.obsymat’
matrix T = SSmod.statemat
Although all the arguments are in principle matrices, as a convenience you may give obsy as a
series or list of series, and the other arguments can be given as scalars if in context they are 1 × 1.
If applicable you may specify any of the following optional input matrices:2
Symbol Dimensions Key If omitted. . .
Σ n×n obsvar no disturbance term in observation equation

α0 r ×1 inistate α0 is a zero vector
P0 r ×r inivar P0 is set automatically
These matrices are not passed to ksetup, rather you add them to the bundle returned by ksetup
(under their reserved keys) as you usually add elements to a bundle, for example:
SSmod.obsvar = Veps
Naturally, the arguments you pass to ksetup must have mutually compatible dimensions, other-
wise an error is returned. Once setup is complete the dimensions of the model, r , n and N, become
available as scalar members of the bundle (under their own names).
The automatic initialization of P1|0 (in case inivar is not specified) is applicable only if all the
eigenvalues of T lie inside the unit circle. In this case, the variance for the marginal distribution of
αt is well defined and the initializer is computed using
vec(P1|0 ) = [I − T ⊗ T ]−1 vec(Ω)
Otherwise, we apply a diffuse prior, setting P1|0 = κIr with κ = 107 . You can impose this diffuse
prior from the outset by setting a value of 1 on the bundle under the (reserved) key diffuse:
SSmod.diffuse = 1
In some cases this diffuse initialization may lead to numerical problems. It may then be helpful to
specify a diffuse initializer via inivar using a somewhat smaller value of κ, as in
SSmod.inivar = 1.0e5 * I(stdim)
where stdim is the dimension of the state.

2 Additional optional matrices are described in section 36.8 below.
36.4 Special features of state-space bundles

A bundle created by ksetup works in most ways like any other gretl bundle but some differences
should be noted. With an ordinary bundle you can replace or delete members at will; with a state-
space bundle there are certain constraints.
• You can replace the coefficient matrices obsymat, statemat, statevar and (if applicable)
obsvar in a given bundle if you wish — but only on condition that the replacement matrix has
the same dimensions as the original. In other words, the dimensions r and n are set once and
for all by the ksetup call (section 36.3).
• You can replace the data matrix obsy subject to the condition that the number of columns, n,
is unchanged; the time-series length, N, is mutable.
• None of the input matrices just mentioned can be deleted from the bundle.
• Output matrices that are automatically added to the bundle by the functions described in the
following sections can be deleted (if you don’t need them and want to save on storage). But
they cannot be replaced by arbitrary user content under the same key.
• The only other “special” member that can be deleted is the function call (string) that is dis-
cussed in section 36.8.
Nonetheless, in the “user area” of the bundle (that is, under keys other than the reserved ones
noted in this chapter), the usual rules apply.
For all the “k” functions described below the first argument (and in most cases the only argument)
must be a pointer to a bundle obtained via ksetup. Any old bundle will not do. A “pointer to
bundle” is specified by prefixing the name of the bundle with an ampersand, as in “&SSmod”. Passing
the argument in pointer form allows these functions to modify the content of the bundle.
36.5 The kfilter function

Once a model is established, as described in the previous section, kfilter can be used to run a
forward, forecasting pass. This function takes a single argument, namely a bundle-pointer, and
it returns a scalar code: 0 for successful completion, or non-zero if numerical problems were
encountered. The forward iteration is as follows.
vt = yt − Zt αt
Ft = Zt Pt Zt′ + Σt
Mt = Tt Pt Zt′
αt+1 = Tt αt + Kt vt
Pt+1 = Tt Pt Tt′ + Ωt − Ct
where Kt = Mt Ft−1 is the Kalman gain, and Ct = Mt Ft−1 Mt′ .

On successful completion, several elements are added to the input bundle (or updated if they’re al-
ready present). A scalar under the key lnl gives the overall loglikelihood under the joint normality
assumption,  
N N
1 X X
ℓ=− nN log(2π ) + log |Ft | + vt′ Ft−1 vt 
2 t=1 t=1
while the key llt gives access to a N-vector, element t of which is
1h i
ℓt = − n log(2π ) + log |Ft | + vt′ Ft−1 vt
2
In addition the scalar s2 holds the scale factor,

N
1 X
σ̂ 2 = v ′ F −1 vt
nN − d t=1 t t
where d denotes the number of elements in the state vector subject to a diffuse initialization. This
is as in SsfPack 2.2 (Koopman et al., 1999).
Five additional matrices also become available. Each of these has N rows, one for each time-step;
the contents of the rows are shown in the following listing.
1. Forecast errors for the observable variables, vt′ , n columns: key prederr.
2. Variance matrix for the forecast errors, vech(Ft )′ , n(n + 1)/2 columns: key pevar.
′
3. Estimate of the state vector, α̂t|t−1 , r columns: key state.
4. MSE of estimate of the state vector, vech(Pt|t−1 )′ , r (r + 1)/2 columns: key stvar.
5. Kalman gain, vec(Kt )′ , r n columns: key gain.
The Kalman gain is rarely required by the user as such. However, since it is a key quantity in
the filtering algorithm we make it available under a dedicated key for diagnostic purposes in case
numerical problems should arise. For example, the following retrieves the gain after a filtering
operation:
kfilter(&SSmod)
matrix G = SSmod.gain
Then, for example, if you want to retrieve the matrix K at time 10, you need to reshape the tenth
row of the matrix G into the appropriate dimensions:
matrix K10 = mshape(G[10,], SSmod.r, SSmod.n)
36.6 The ksmooth function

Like kfilter, this function takes a single bundle-pointer argument and returns an integer error
code (0 indicating success). It runs a forward, filtering pass followed by a backward pass which
computes a smoothed estimate of the state and its MSE using the method of Anderson and Moore.
Note that since ksmooth starts with a forward pass, it can be run without a prior call to kfilter.
This may appear to be useless duplication, but in fact it enables an efficient scripting option. The
main utility of the forward pass lies in the calculation of the log-likelihood in the context of estima-
tion; however, if a state space model contains no parameters that have to be estimated, the model
setup can be followed directly by a call to ksmooth. (And the same goes for kdsmooth below.)
The backward-pass algorithm is as follows: for t = N, . . . , 1
Lt = Tt − Kt Zt′
ut−1 = Zt Ft−1 vt + L′t ut
Ut−1 = Zt Ft−1 Zt′ + L′t Ut Lt
α̂t|T = α̂t|t−1 + Pt|t−1 ut−1
Pt|T = Pt|t−1 − Pt|t−1 Ut−1 Pt|t−1
with initial values uN = 0 and UN = 0.
On successful completion, all the quantities computed by kfilter are available as bundle members
(see section 36.5), but the keys state and stvar now give the smoothed estimates. That is, row t of
′
the state matrix holds α̂t|T and row t of stvar holds Pt|T , in transposed vech form with r (r +1)/2
elements.
36.7 The kdsmooth function

This function requires a bundle-pointer argument and returns an integer error code (0 indicating
success). It runs a forward, filtering pass followed by a backward pass which computes a smoothed
estimate of the disturbances along with a dispersion measure, using the methods described in
Koopman (1993) and Koopman et al. (1999).
Upon successful execution of the function, the bundle will contain under the key smdist an N ×
(r + n) matrix holding smoothed estimates of ηt and εt . That is, a matrix whose t-th row contains
(η̂′t , ε̂t′ ) = E (η′t , εt′ ) | y1 , . . . , yT

(This assumes the observation equation has a stochastic component; if it does not, then smdist is
just N × r .) Once the smoothed disturbances are obtained the smoothed state can be calculated
quickly and easily, so a call to kdsmooth updates the state member of the bundle passed as
argument. However, the variance of the state (stvar) is not updated by kdsmooth; only ksmooth
does that.
An associated dispersion measure is provided under the key smdisterr. The precise definition
of this matrix depends on a second, optional Boolean parameter. Before describing the action of
this parameter we need to give a brief account of the two variance measures that are found in the
literature on disturbance smoothing. Our account runs in terms of the state disturbance, ηt , but it
applies equally to the observation disturbance, εt , if present.
One measure of variance is the mean square distance of the inferred disturbances from zero (that
(1)
is, from their unconditional expectation). Let us call this Vt :
(1)
Vt = E η̂t η̂′t

This measure is used in computing the so-called auxiliary residuals, which are advocated in Durbin
and Koopman (2012) as useful diagnostic tools. Auxiliary residuals for the state equation are ob-
(1)
tained by dividing η̂t by the square roots of the associated diagonal elements of Vt . In computing
this matrix we use the formulae given in Koopman et al. (1999, section 4.4).
A second measure of variance is the mean squared distance of the inferred disturbances around
(2)
their true values, or in other words the mean squared error, which we’ll write as Vt .
(2)
Vt = E (η̂t − ηt ) (η̂t − ηt )′ | y1 , . . . , yT

We calculate this matrix using the formulae given in Durbin and Koopman (2012, section 4.5.2). Its
diagonal elements can be used to form confidence intervals for the true disturbances.
We are now ready to state what gretl provides under the key smdisterr. If the optional second
(2)
argument is present and non-zero the results are based on Vt , otherwise (that is, by default) they
(1)
are based on Vt . In either case row t of smdisterr contains the square roots of the diagonal
elements of the matrix in question: the first r elements pertain to the state disturbances and the
following n elements to the observation equation (if applicable). Like smdist, smdisterr has N
rows and either r + n or just r columns depending on whether or not there’s a disturbance term
in the observation equation. We return standard deviations rather than variances since most of the
time it’s the former that users will actually want.
Section 36.11 presents a script which exercises the disturbance smoother and illustrates the differ-
(1) (2)
ence between Vt and Vt .
36.8 Extensions and refinements

Regressors in the observation equation
The observation equation (36.1) can be augmented to allow for the effect of a k-vector of observable
exogenous variables, xt , in addition to that of the unobserved state, as in
yt = Bt xt + Zt αt + εt
This specification can be added to a bundle previously obtained via ksetup by use of the keys obsx
(for x) and obsxmat (for B ′ ). In that case obsx must be an N × k matrix and B must be n × k. (But
please note: as with the case of Z described above, backward compatibility dictates that obsxmat
be given in transposed form.)
An exception to this dimensionality rule is granted for convenience. If the observation equation
includes a constant but no additional exogenous variables, you can give B as n × 1 without having
to specify obsx. More generally, if the column dimension of B is 1 greater than k it is assumed that
the first element of B is associated with an implicit column of ones.
Intercept in the state equation

In some applications it may be useful to have an “intercept” in the state transition equation, thus
generalizing equation (36.2) to
αt+1 = µt + Tt αt + ηt
The term µ is never strictly necessary: the system (36.1) and (36.2) can absorb it as an extra (non
time-varying) element in the state vector. However, this comes at the cost of expanding all the
matrices that touch the state (α, T , η, Ω, Z), making the model relatively awkward to formulate
and forecasts more expensive to compute. We therefore adopt the convention above on practical
grounds.
The (r × 1) vector µ can be added to a bundle under the key stconst. Despite its name, this matrix
can be specified as time-varying, as explained in the next section.
Time-varying matrices
Any or all of the matrices obsymat, obsxmat, obsvar, statemat, statevar and stconst may be
time-varying. In that case you must supply the name of a function to be called to update the matrix
or matrices in question: you add this to the bundle as a string, under the key timevar_call.3 For
example, if just obsymat (Zt ) should be updated, by a function named TV_Z, you would write
SSmod.timevar_call = "TV_Z"
The function that plays this role will be called at each time-step of the filtering or simulation
operation, prior to performing any calculations. It should have a single bundle-pointer parameter,
by means of which it will be passed a pointer to the Kalman bundle to which the call is attached. Its
return value, if any, will not be used, so generally it returns nothing (is of type void). However, you
can use gretl’s funcerr keyword to raise an error if things seem to be going wrong; see chapter 14
for details.
Besides the bundle members noted above, a time variation function has access to the current (1-
based) time step, under the reserved key t, and the n-vector containing the forecast error from the
previous time step, vt−1 , under the key uhat; when t = 1 the latter will be a zero vector.
If any additional information is needed for performing the update it can be placed in the bundle
under a user-specified key. So, for example, a simple updater for a (1 × 1) Z matrix might look like
this:
function void TV_Z (bundle *b)

b.obsymat = b.Zvals[b.t]
end function
where b.Zvals is a bundled N-vector. An updater that operates on both Z (n × r ) and T (r × r )

might be
3 The choice of the name for the function itself is of course totally up to the user.
function void update_2 (bundle *b)

b.obsymat = mshape(b.Zvals[b.t,], b.r, b.n)
b.statemat = unvech(b.Tvals[b.t,])
end function
where in this case we assume that b.Zvals is N × r n, with row t holding the (transposed) vec of
Zt , and b.Tvals is N × r (r + 1)/2, with row t holding the vech of Tt . Simpler variants (e.g. just one
element of a relevant matrix in question is changed) and more complex variants — say, involving
some sort of conditionality—are also possible in this framework.
It is worth noting that this setup lends itself to a much wider scope than time-varying system
matrices. In fact, this syntax allows for the possibility of executing user-defined operations at each
step. The function that goes under timevar_call can read all the elements of the model bundle
and can modify several of them: the system matrices (which can therefore be made time-varying)
as well as the user-defined elements.
An extended example of use of the time-variation facility is presented in section 36.11.
Cross-correlated disturbances
The formulation given in equations (36.1) and (36.2) assumes mutual independence of the distur-
bances in the state and observation equations, εt and ηt . This assumption holds good in many
practical applications, but a more general formulation allows for cross-correlation. In place of
(36.1)–(36.2) we may write
yt = Zt αt + Gt νt
αt+1 = Tt αt + Ht νt
where νt is a (p × 1) disturbance vector which is assumed to satisfy νt ∼ N(0, Ip ), Ht is (r × p) and

Gt is (n × p). In that case we may re-express the variance matrices from section 36.2 above as
Σt = Gt Gt′
Ωt = Ht Ht′
with the addition of

Cov(ηt , εt ) = Ht Gt′
In terms of input syntax, if the state and observation disturbances are cross-correlated five argu-
ments should be given to the ksetup function (see section 36.3): in place of giving Ω you should
give the two matrices identified above as H and G, as in
bundle SSxmod = ksetup(y, Z, T, H, G)
In case you wish to retrieve or update information on the variance of the disturbances, note that in
the cross-correlated case the bundle keys statevar and obsvar are taken to designate the factors
H and G respectively.
36.9 The ksimul function

This simulation function has as its required arguments a pointer to a Kalman bundle and a matrix
containing artificial disturbances, and it returns a matrix of simulation results. An optional trailing
Boolean argument is supported, the purpose of which is explained below.
If the disturbances are not cross-correlated, the matrix argument must be either N × r , if there is
no disturbance in the observation equation, or N × (r + n) if the Σ (obsvar) matrix is specified. Row
t holds either η′t or (η′t , εt′ ). Note that if Ω (statevar) is not simply an identity matrix you will have
to scale the artificial state disturbances appropriately; the same goes for Σ and the observation
disturbances, if present. Given a matrix U containing standard normal variates, in the general case
this requires finding a matrix A such that
!
′ Ω 0r ×n
AA = Λ ≡
0n×r Σ
and post-multiplying U by A′ (although it’s not necessary to form A explicitly if the disturbance
variance matrices are diagonal). This is not particularly onerous if Λ is time-invariant; gretl’s
psdroot function can be used to form A if it’s needed. If Ω and/or Σ are time-varying, however,
this scaling can become quite burdensome. As a convenience, the ancillary function ksimdata can
be used to pre-process the U matrix automatically. Here’s an example (we assume that a bundle
named b has been obtained via ksetup):
matrix N = mnormal(500, b.r + b.n)

matrix E = ksimdata(&b, N)
matrix sim = ksimul(&b, E)
or if you have no need to store the disturbances:
matrix sim = ksimul(&b, ksimdata(&b, mnormal(500, b.r + b.n)))
Time-variation or no, ksimdata will ensure that the disturbances are scaled to the variances speci-
fied by Ωt and Σt .
If the disturbances are cross-correlated (see section 36.8) then the matrix argument to ksimul
should be N × p, each row holding νt′ . In this case no prior scaling is required since it is assumed
that νt ∼ N(0, I) and the disturbances for the respective equations, Ht νt and Gt νt , are computed
internally, with regard to time-variation if applicable.
For the purposes of ksimul the time-series length, N, is defined by the number of rows of the
supplied disturbance matrix. This need not equal the original N value (set from obsy in the initial
call to ksetup), since obsy is ignored under simulation. However, if the model includes exogenous
variables in the observation equation (obsx) and the simulation length is greater than the original
N, the simulation will run out of data and fail unless you supply a larger x matrix. This can be
done in either of two ways. You can add a suitably sized matrix to the Kalman bundle under the
key simx; if present, this will be used in preference to obsx for simulation. Or if you don’t mind
over-writing the original obsx you can substitute another matrix with the required number of rows
under that key.
By default, the value returned by ksimul is a (N × n) matrix holding simulated values for the vector
of observables at each time step; that is, row t holds ỹt′ , where the tilde indicates a simulated
quantity. To obtain a record of the simulated state, supply a non-zero value for the final, optional
argument. In that case the returned matrix is N × (r + n) and contains both the simulated state
and the simulated observable; row t holds (α̃t′ , ỹt′ ).
Note that the original obsy member of the bundle is not overwritten by ksimul, nor is state or
any other user-accessible output matrix. On exit from ksimul the prior value of N is restored.
The initial state under simulation

The recursion that yields ỹ and α̃ is as follows: for t = 1, . . . , N
ỹt = Zt α̃t + εt
α̃t+1 = Tt α̃t + ηt
This implies that a value for α̃1 is required to get things started. You can add such a value to a
Kalman bundle under the reserved key simstart. If this member is not present in the bundle,
α̃1 defaults to the value given under the key inistate, or if that in turn is not present, to a zero
vector.
Alternatively, the starting point can be made stochastic. To do this you can emulate the procedure
followed by SsfPack, namely setting
α1 = a + Av0
where a is a non-stochastic r -vector, v0 is an r -vector of standard normal random numbers, and A
is a matrix such that AA′ = P0 .
Let’s say we have a state-space bundle b, on which we have already set suitable values of inistate
(corresponding to a above) and inivar (P0 ). To perform a simulation with a stochastic starting
point we can set α1 thus:
matrix A = psdroot(b.inivar)
b.simstart = b.inistate + A * mnormal(b.r, 1)
36.10 Numerical optimization

If the object of using a state space model is to produce maximum likelihood estimates of some
parameters of interest, note that the loglikelihood surface may be quite awkward (far from globally
concave), posing a challenge for numerical methods such as BFGS, the default maximizer under
gretl’s mle command. Symptoms may include failure of convergence — typically due to an excessive
computed gradient even as the maximizer cannot find an improvement in the objective function —
or an excessive number of iterations. In such cases it is worth considering the following points.
• In some cases, scaling the observables may help: if the order of magnitude of yt is too small
or too large, floating-point precision may become an issue for estimating variances.
• If you can obtain plausible initial values for the parameters, things are likely to go better than
starting with arbitrary values.
• The limited-memory version of BFGS (L-BFGS) may work better than the standard version in
some cases. To engage this, issue the command
set lbfgs on
prior to ML estimation.
• It may be helpful to employ a more accurate (but computationally more expensive) method
for computing the gradient, namely Richardson extrapolation. Here the command is
set bfgs_richardson on
36.11 Example scripts

This section presents a selection of short sample scripts to illustrate the most important points
covered in this chapter.
ARMA estimation
Functions illustrated in this example: ksetup, kfilter.
As is well known, the Kalman filter provides a very efficient way to compute the likelihood of ARMA
models; as an example, take an ARMA(1,1) model
yt = φyt−1 + εt + θεt−1
Listing 36.1: ARMA estimation [Download ▼]
function void arma11_via_kalman (series y)

/* parameter initialization */
scalar phi = 0
scalar theta = 0
scalar sigma = 1
/* state-space model setup */

matrix Z = {1, theta}
matrix T = {phi, 0; 1, 0}
matrix Q = {sigma^2, 0; 0, 0}
bundle kb = ksetup(y, Z’, T, Q)
/* maximum likelihood estimation */

mle logl = ERR ? NA : kb.llt
kb.obsymat[2] = theta
kb.statemat[1,1] = phi
kb.statevar[1,1] = sigma^2
ERR = kfilter(&kb)
params phi theta sigma
end mle --hessian
end function
# ------------------------ main ---------------------------
open arma.gdt # open the "arma" example dataset

arma11_via_kalman(y) # estimate an arma(1,1) model
arma 1 1 ; y --nc # check via native command
One of the ways the above equation can be cast in state-space form is by defining a latent process
αt = (1 − φL)−1 εt . The observation equation corresponding to (36.1) is then
yt = αt + θαt−1 (36.3)
and the state transition equation corresponding to (36.2) is

" # " #" # " #
αt φ 0 αt−1 εt
= +
αt−1 1 0 αt−2 0
The hansl syntax for a corresponding filter would be
matrix Z = {1, theta}

matrix T = {phi, 0; 1, 0}
matrix Q = {s^2, 0; 0, 0}
bundle kb = ksetup(y, Z’, T, Q)
or, if you prefer, just a one-liner:
bundle kb = ksetup(y, {1; theta}, {phi, 0; 1, 0}, {s^2, 0; 0, 0})
Note that the observation equation (36.3) does not include an “error term”; this is equivalent to
saying that var(εt ) = 0 and there is therefore no need to add an obsvar element to the bundle.
Once the filter is set up, all it takes to compute the log-likelihood for given values of φ, θ and σε2 is
to execute the kfilter function and read the Kalman bundle’s lnl member (which holds the total
loglikelihood) or—more appropriately if the likelihood has to be maximized through mle— llt,
which gives the series of contributions to the log-likelihood per observation. An example is shown
in script 36.1.
The Hodrick–Prescott filter

Functions illustrated in this example: ksetup, kfilter, ksmooth.
The Hodrick–Prescott (HP) filter can be obtained as the solution of a prediction problem, that is
obtaining estimates of the latent time series µt in
xt = µt + εt
2
∆ µt = ηt ,
where xt is an observable time series and εt and ηt are mutually uncorrelated white noise processes;
V (ε )
the ratio between the two variances is the “smoothing” parameter: λ = V (ηtt ) . This is normally
calibrated rather than estimated, and a common choice for macro data is to make it a function of
the data periodicity: λ = 100 · p 2 , where p is the number of subperiods in a year. See Harvey and
Jaeger (1993) and King and Rebelo (1993) for details.
The most common use of the HP filter is to obtain an estimate of the trend µt using all the available
data, so that the estimate for each period t uses future as well as prior values of xt . But in some
uses (such as forecasting) this is clearly undesirable, and we may wish to construct µ̂t as a function
of xt , xt−1 , . . . only. This point was famously made by Stock and Watson (1999), and the resulting
estimator is known as the one-sided HP filter.
A possible space-state representation of the model above is
" #
µt
xt = [1 0] + εt
µt−1
" # " #" #
µt 2 −1 µt−1
= + ηt .
µt−1 1 0 µt−2
Listing 36.2: HP filter [Download ▼]
function series hp_via_kalman(series y, scalar lambda[0], bool oneside[0])

if lambda == 0
lambda = 100 * $pd^2
endif
# State transition matrix
matrix T = {2, -1; 1, 0}
# Observation matrix
matrix Z = {1, 0}
# Covariance matrix in the state equation
matrix Q = {1/sqrt(lambda), 0; 0, 0}
matrix my = {y}
string desc = ""

if oneside
matrix my = my | 0
desc = "1-sided "
endif
ssm = ksetup(my, Z’, T, Q)

ssm.obsvar = sqrt(lambda)
ssm.inistate = {2*y[1]-y[2] ; 3*y[1]-2*y[2]}
ssm.diffuse = 1
err = oneside ? kfilter(&ssm) : ksmooth(&ssm)

if err
series ret = NA
else
mu = oneside ? ssm.state[2:,2] : ssm.state[,1]
series ret = y - mu
endif
string d = sprintf("%sHP-filtered %s (lambda = %g)", desc, argname(y), lambda)

setinfo ret --description="@d"
return ret
end function
# --- example ------------------------------------------------------------
clear
open fedstl.bin
data houst
y = log(houst)
# one-sided, built-in then hansl

n1c = hpfilt(y, 1600, 1)
series h1c = hp_via_kalman(y, 1600, 1)
ols n1c const h1c --simple-print
# two-sided, built-in then hansl

n2c = hpfilt(y, 1600)
series h2c = hp_via_kalman(y, 1600)
ols n2c const h2c --simple-print
Estimates for µt can be obtained by running a forward filter for the one-sided version, plus a
smoothing pass for the two-sided one. Code implementing the filter is shown in script 36.2, along
with an example using the “housing starts” series from the St. Louis Fed database. The example
also compares the result of the function to that from gretl’s native hpfilt() function.
Note that in the case of the one-sided filter a little trick is required in order to get the desired
result: the state matrix stored by the kfilter() function is the estimate of α̂t|t−1 , whereas what
we require is in fact α̂t|t . To work around this we add an extra observation to the end of the series
and retrieve the one-step-ahead estimate of the lagged state.
Local level model

Functions illustrated in this example: ksetup, kfilter, ksmooth.
Suppose we have a series yt = µt + εt , where µt is a random walk with normal increments of
variance σ12 and εt is normal white noise with variance σ22 , independent of µt . This is known as
the “local level” model, and it can be cast in state-space form as equations (36.1)–(36.2) with T = 1,
ηt ∼ N(0, σ12 ), Z = 1 and εt ∼ N(0, σ22 ).4 The translation to hansl is
bundle llmod = ksetup(y, 1, 1, s1)

llmod.obsvar = s2
llmod.diffuse = 1
The two unknown parameters σ12 and σ22 can be estimated via maximum likelihood. Listing 36.3
provides an example of simulation and estimation of such a model. Since simulating the local level
model is trivial using ordinary gretl commands, we don’t use ksimul in this context.5
Time-varying models
To illustrate state space models with time-varying system matrices we will use time-varying OLS.
Suppose the DGP for an observable time series yt is given by
yt = β0 + β1,t xt + εt (36.4)
where the slope coefficient β1 evolves through time according to
β1,t+1 = β1,t + ηt (36.5)
It is easy to see that the pair of equations above define a state space model, with equation (36.4)
as the measurement equation and (36.5) as the state transition equation. The unobservable state is
β1,t , T = 1 and Ω = ση2 . As for the measurement equation, Σ = σε2 , while the matrix multiplying
β1,t , and hence playing the role of Zt , is the time-varying xt .
Once the system is framed as a state-space model, estimation of the three unknown parameters
β0 , σε2 and ση2 can proceed by maximum likelihood in a manner similar to example 36.1 and 36.3.
The sequence of slope coefficients β1,t can then be estimated by running the smoother, which also
yields a consistent estimate of the dispersion of the estimated state.
Listing 36.4 presents an example in which data from the AWM database are used to estimate a
Phillips Curve with time-varying slope:
INFQt = β0 + β1,t URXt + εt

4 Note that the local level model, plus other common “Structural Time Series” models are implemented in the Struc-
TiSM function package.

5 Warning: as the script stands, there is an “off-by-one” misalignment between the state vector and the observable
series. For convenience, the script is written as if equation (36.2) was modified into the equivalent formulation
αt = T αt−1 + ηt
We kept the script as simple as possible so that the reader can focus on the interesting aspects.
Listing 36.3: Local level model [Download ▼]
nulldata 200
set seed 101010
setobs 1 1 --special-time-series
/* set the true variance parameters */

true_s1 = 0.5
true_s2 = 0.25
/* and simulate some data */

v = normal() * sqrt(true_s1)
w = normal() * sqrt(true_s2)
mu = 2 + cum(v)
y = mu + w
/* starting values for variance estimates */

s1 = 1
s2 = 1
/* state-space model set-up */

bundle kb = ksetup(y, 1, 1, s1)
kb.obsvar = s2
kb.diffuse = 1
/* ML estimation of variances */
mle ll = ERR ? NA : kb.llt
ERR = kfilter(&kb)
params kb.statevar kb.obsvar
end mle
/* compute the smoothed state */

ksmooth(&kb)
series muhat = kb.state
Listing 36.4: Phillips curve on Euro data with time-varying slope [Download ▼]
function void at_each_step(bundle *b)

b.obsymat = transp(b.mX[b.t,])
end function

smpl 1974:1 1994:1
/* parameter initialization */
scalar b0 = mean(INFQ)
scalar s_obs = 0.1
scalar s_state = 0.1
/* bundle setup */
bundle B = ksetup(INFQ, 1, 1, 1)
matrix B.mX = {URX}
matrix B.depvar = {INFQ}
B.timevar_call = "at_each_step"
B.diffuse = 1
/* ML estimation of intercept and the two variances */

mle LL = err ? NA : B.llt
B.obsy = B.depvar - b0
B.obsvar = s_obs^2
B.statevar = s_state^2
err = kfilter(&B)
params b0 s_obs s_state
end mle
/* display the smoothed time-varying slope */

ksmooth(&B)
series tvar_b1hat = B.state[,1]
series tvar_b1se = sqrt(B.stvar[,1])
gnuplot tvar_b1hat --time-series --with-lines --output=display \
--band=tvar_b1hat,tvar_b1se,1.96 --band-style=fill
-0.05
tvar_b1hat -0.1
-0.15
-0.2
-0.25
-0.3
1975 1980 1985 1990
Figure 36.1: Phillips Curve on Euro data: time-varying slope and 95% confidence interval
where INFQ is a measure of quarterly inflation and URX a measure of unemployment. At the end
of the script the evolution of the slope coefficient over time is plotted along with a 95% confidence
band—see Figure 36.1.
Disturbance smoothing
Functions illustrated in this example: ksetup, kdsmooth.
In section 36.7 we noted that the kdsmooth function can produce two different measures of the
dispersion of the smoothed disturbances, depending on the the value of the (optional) trailing
Boolean parameter. Here we show what these two measures are good for, using the famous Nile flow
data that have been much analysed in the state-space literature. We focus on the state equation;
that is, the random-walk component of the observed series.
Our script is shown in Listing 36.5. This is an instance of the Local Level model and the ML variance
estimates are obtained as in Listing 36.3. In the first call to kdsmooth we omit the optional switch
and therefore compute E(η̂t η̂′t ) for each t. This quantity is suitable for constructing the auxiliary
residuals shown in the top panel of Figure 36.2 (for similar plots see Koopman et al., 1999; Pelagatti,
2011). This plot suggests the presence of a structural break shortly prior to 1900, as various
authors have observed.
In the second kdsmooth call we ask gretl to compute instead E[(η̂t − ηt )(η̂t − ηt )′ |y1 , . . . , yT ], the
MSE of η̂t considered as an estimator of ηt . And in the lower panel of the Figure we plot η̂t along
with a 90% confidence band (roughly, ±1.64 times the RMSE). This reveals that, given the sampling
variance of η̂t , we’re not really sure that any of the ηt values were truly different from zero. The
resolution of the seeming conflict here is commonly reckoned to be that there was in fact a change
in mean around 1900, but besides that event there’s little evidence for a non-zero ση2 . Or in other
words the standard local level model is not really applicable to the data.
36.12 Graphical interface

By this point, the reader will have gathered that setting up a state space model can be quite a
complex undertaking, and the only general way to accomplish it is by writing a script. However,
some cases are simple enough to lend themselves to a standardized treatment, and so can be
Listing 36.5: Working with smoothed disturbances – Nile data [Download ▼]
open nile.gdt
# ML variance estimates
scalar s2_eta = 1468.49
scalar s2_eps = 15099.7
bundle LLM = ksetup(nile, 1, 1, s2_eta)

LLM.obsvar = s2_eps
LLM.diffuse = 1
kdsmooth(&LLM)
series eta_aux = LLM.smdist[,1] ./ LLM.smdisterr[,1]
series zero = 0
plot eta_aux
options time-series with-lines band=zero,const,2
literal unset ylabel
literal set title ’Auxiliary residual, state equation’
kdsmooth(&LLM, 1)
series etahat = LLM.smdist[,1]
series sdeta = LLM.smdisterr[,1]
plot etahat
options time-series with-lines band=etahat,sdeta,1.64485
literal unset ylabel
literal set title ’State disturbance with 90% confidence band’
(a) Auxiliary (standardized) residuals, state equation
-1
-2
-3
-4
1880 1900 1920 1940 1960
(b) Estimated state disturbance with 90% confidence band
100
80
60
40
20
-20
-40
-60
-80
-100
-120
1880 1900 1920 1940 1960
Figure 36.2: Nile data: auxiliary residuals and η̂t from disturbance smoother
handled via a relatively streamlined graphical interface. As of version 2022a, gretl provides just
this: a GUI for estimating a subset of state space models that, while limited, may still be useful
for pedagogical purposes, sparing the user from the intricacies of scripting. In this section, we
describe the GUI and the class of models it supports.
The GUI can be used for performing ML estimation of models of the kind
yt = Zαt + εt (36.6)
αt = T αt−1 + Rηt (36.7)
where yt is a vector of observables, V (εt ) is a diagonal matrix — or possibly 0, in which case the last
term of equation (36.6) is dropped. As for the covariance matrix of the shocks to equation (36.7), it
is assumed that ηt is an IID sequence of normal random variates with diagonal covariance matrix
Ση . Therefore, the covariance matrix denoted by Ω in the previous sections of this chapter (whose
corresponding key in the Kalman bundle is statevar) is assumed to be Ω = RΣη R ′ . Note that R
can have fewer columns than r , thereby making Ω singular. In the graphical interface, this is called
the “state variance factor”.
The system matrices Z, T and R are assumed to be time-invariant and known, so estimation only
concerns the variances of εt and ηt . Clearly, this is a limited subset of the range of models that
gretl can handle, but it may be of some value to users.
Figure 36.3: GUI hook for state space models
ML estimation is carried out internally using the mle command with the limited-memory version
of the BFGS optimizer, and the user is given the option of tracking the optimization process via a
“verbosity” option. For reasons of numerical performance, it is convenient to have the choice of
representing variances as transformations of the BFGS parameters in one of the three following
ways:
Absolute value maximization is performed on the variances: σ 2 = |θ|
Square maximization is performed on the standard deviations: σ 2 = θ 2
Exponential maximization is performed on the log standard deviations: σ 2 = exp(2 · θ)

Normally, this choice should make no difference for well-behaved data, although numerical prob-
lems may occur sometimes. In these cases, it may be helpful to rescale the data by multiplying yt
by some scalar (such as 100 or 0.0001) so as to make the order of magnitude of the parameters
less prone to finite-precision issues. In any case, the function reports the estimates of the standard
errors whatever the parametrization type. Once the parameters are estimated the user has the
choice of performing smoothing of the states.
The GUI is shown in figure 36.3. The “observables” box is used for specifying a list of series (or a
single series) for yt . The next two boxes handle the Z and T matrices, respectively. These can be
pre-existing matrices or may be created “on the fly”. The same applies for the next box, dedicated
to the R matrix. However, the R matrix can be omitted, in which case it is implicitly assumed R = I.
The remaining GUI elements should hopefully be self-explanatory.
The function returns a bundle which includes a sub-bundle called kmod with all the state-space
internals; a matrix called state holding the estimated states; and matrices coeff and vcv holding,
respectively, the coefficients and standard errors obtained via ML estimation.
Example: Random walk plus noise

The model here is
yt = αt + εt αt = αt−1 + ηt
so that Z = T = R = 1.
The following script simulates the DGP above with V (εt ) = 1 and V (ηt ) = 1/16, and sets up the
two matrices Z and T, ready to be entered into the second and third boxes of the GUI helper,
respectively; obviously, the first box should contain the string y. Note that the first box expects as
argument a named list, thereby allowing for multivariate models.
clear
set verbose off
set seed 280921
nulldata 256
setobs 1 1 --special
# example 1: random walk plus noise
series m = cum(normal() * 0.25)

series y = m + normal()
Z = {1}
T = {1}
3
m
mhat
2
-1
-2
-3
-4
0 50 100 150 200 250
Figure 36.4: Estimated state

Once this is done, clicking on the “OK” button should result in the output shown below; by clicking
on the “Graph” icon the picture shown in Figure 36.4 should be produced.
Observation equation

------------------------------------------------------
stdev[1] 0.939311 0.0496287 18.93 6.86e-80 ***
State transition equation

------------------------------------------------------
stdev[1] 0.274650 0.0488920 5.617 1.94e-08 ***
Example: Random walk plus noise plus seasonal

The model here is
yt = µt + st + εt ,
where µt = µt−1 +η1,t is a random walk, as in the previous example, and st is a seasonal component,
implicitly defined by the property
S−1
X
st = − st−i + η2,t ,
j=1
S being the number of subperiods. This model is amenable to the representation used in this
section by defining the state vector as
αt = [µt , st , st−1 , st−2 ]′ .
For example, with quarterly data the system matrices would be equal to
   
1 0 0 0 1 0
0 −1 −1 −1 0 1
h i    
Z= 1 1 0 0 T =
0
 R= 
 1 0 0
0
 0

0 0 1 0 0 0
The following script applies this model to one of the series in the gretl example dataset data9-3.gdt:
open data9-3
y = log(reskwh)
Z = ones(2,1) | zeros(2,1)
SeasMat = -ones(1,3) | I(2,3)
T = diagcat(1, SeasMat)
R = I(2) | zeros(2,2)
Again, filling the GUI boxes in the obvious way and clicking “OK” will produce the output below:
Observation equation

-----------------------------------------------------
stdev[1] 0.0173633 0.00448117 3.875 0.0001 ***
State transition equation

------------------------------------------------------
stdev[1] 0.0269790 0.00409457 6.589 4.43e-11 ***
stdev[2] 0.00648082 0.00202576 3.199 0.0014 ***
Log-likelihood = 121.33
Note that the output window will contain a few icons on the top bar. By clicking on the second one
from the left, it is possible to save to the gretl workspace one or more elements from the returned
bundle. For example, the kmod key corresponds to the estimated kalman bundle. Saving it under
the name kb and running the code below will produce the plot shown in Figure 36.5.
series trend = kb.state[,1]

series seas = kb.state[,2]
scatters y trend seas
y trend
7.4 7.3
7.3 7.2
7.2 7.1
7.1
7 7
6.9 6.9
6.8 6.8
6.7 6.7
6.6
6.5 6.6
6.4 6.5
6.3 6.4
1973 1978 1983 1988 1993 1973 1978 1983 1988 1993
seas
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
1973 1978 1983 1988 1993
Figure 36.5: Estimated trend and seasonal component

Chapter 37
Numerical methods
Several functions are available to aid in the construction of special-purpose estimators: their pur-
pose is to find numerically approximate solutions to problems that in principle could be solved
analytically, but in practice cannot be, for one reason or another. In this chapter, we illustrate the
tools that gretl offers for optimization of functions, differentiation and integration.
37.1 Derivative-based optimization methods

In some cases, the function we want to optimize is differentiable and has a maximum in the interior
of the search space. In these cases, you will want to use algorithms that exploit this feature, such
as BFGS or Newton–Raphson. If this is not the case, you may want to use derivative-free methods,
which are illustrated in section 37.2.
BFGS
The BFGSmax function has two required arguments: a vector holding the initial values of a set of
parameters, and a call to a function that calculates the (scalar) criterion to be maximized, given
the current parameter values and any other relevant data. If the object is in fact minimization, this
function should return the negative of the criterion. On successful completion, BFGSmax returns the
maximized value of the criterion and the vector given via the first argument holds the parameter
values which produce the maximum. It is assumed here that the objective function is a user-defined
function (see Chapter 14) with the following general set-up:
function scalar ObjFunc (const matrix theta, matrix *X)

scalar val = ... # do some computation
return val
end function
The first argument contains the parameter vector (which should not be modified within the func-
tion) and the second may be used to hold “extra” values that are necessary to compute the objective
function, but are not the variables of the optimization problem. Here the pointer form is chosen
for the argument, but depending on the problem it could also be passed as a plain argument, with
our without the const modifier. For example, if the objective function were a log-likelihood, the
first argument would contain the parameters and the second one the data. Or, for more economic-
theory inclined readers, if the objective function were the utility of a consumer, the first argument
might contain the quantities of goods and the second one their prices and disposable income.
The operation of BFGS can be adjusted using the set variables bfgs_maxiter and bfgs_toler
(see Chapter 26). In addition you can provoke verbose output from the maximizer by setting
max_verbose to on, again via the set command (alternatively, you could have set it to full and
get even richer output).
The Rosenbrock function is often used as a test problem for optimization algorithms. It is also
known as “Rosenbrock’s Valley” or “Rosenbrock’s Banana Function”, on account of the fact that its
contour lines are banana-shaped. It is defined by:
f (x, y) = (1 − x)2 + 100(y − x 2 )2
358
Chapter 37. Numerical methods 359
Listing 37.1: Finding the minimum of the Rosenbrock function [Download ▼]
function scalar Rosenbrock(const matrix param)

scalar x = param[1]
scalar y = param[2]
return -(1-x)^2 - 100 * (y - x^2)^2
end function
matrix theta = {0, 0}

set max_verbose on
M = BFGSmax(&theta, Rosenbrock(theta))
print theta
The function has a global minimum at (x, y) = (1, 1) where f (x, y) = 0. Listing 37.1 shows a gretl
script that discovers the minimum using BFGSmax (giving a verbose account of progress). Note
that, in this particular case, the function to be maximized only depends on the parameters, so the
second parameter is omitted from the definition of the function Rosenbrock.
Supplying analytical derivatives for BFGS

An optional third argument to the BFGSmax function enables the user to supply analytical deriva-
tives of the criterion function with respect to the parameters (without which a numerical approxi-
mation to the gradient is computed). This argument is similar to the second one in that it specifies
a function call. In this case the function that is called must have the following signature.
Its first argument should be a pre-defined matrix correctly dimensioned to hold the gradient; that
is, if the parameter vector contains k elements, the gradient matrix must also be a k-vector. This
matrix argument must be given in “pointer” form so that its content can be modified by the func-
tion. (Note that unlike the parameter vector, where the choice of initial values can be important,
the initial values given to the gradient are immaterial and do not affect the results.)
In addition the gradient function must have as one of its argument the parameter vector. This may
be given in pointer form (which enhances efficiency) but that is not required. Additional arguments
may be specified if necessary.
Given the current parameter values, the function call must fill out the gradient vector appropriately.
It is not required that the gradient function returns any value directly; if it does, that value is
ignored.
Listing 37.2 illustrates, showing how the Rosenbrock script can be modified to use analytical deriva-
tives. (Note that since this is a minimization problem the values written into g[1] and g[2] in the
function Rosen_grad are in fact the derivatives of the negative of the Rosenbrock function.)
Limited-memory variant and constrained optimization

As an alternative to “standard” BFGS gretl offers the limited-memory variant, L-BFGS-B. This is de-
scribed by Byrd et al. (1995) and Zhu et al. (1997). Gretl uses version 3.0 of this code, which features
improvements described by Morales and Nocedal (2011). Some problems that defeat standard BFGS
may be amenable to solution by L-BFGS-B. To see if this is the case, gretl code that uses BFGS can
be pushed into using the alternative algorithm via the set command, as follows:
set lbfgs on
The primary case for using L-BFGS-B, however, is constrained optimization: this algorithm supports
constraints on the parameters in the form of minima and/or maxima. In gretl this is implemented
Listing 37.2: Rosenbrock function with analytical gradient [Download ▼]
function scalar Rosenbrock (const matrix param)

scalar x = param[1]
scalar y = param[2]
return -(1-x)^2 - 100 * (y - x^2)^2
end function
function void Rosen_grad (matrix *g, const matrix param)

scalar x = param[1]
scalar y = param[2]
g[1] = 2*(1-x) + 2*x*(200*(y-x^2))
g[2] = -200*(y - x^2)
end function

matrix grad = {0, 0}
set max_verbose 1
M = BFGSmax(&theta, Rosenbrock(theta), Rosen_grad(&grad, theta))
print theta
print grad
by the function BFGScmax (‘c’ for constrained). The syntax is basically similar to that of BFGSmax,
except that the first argument must followed by specification of a “bounds” matrix. This matrix
should have three columns and as many rows as there are constrained elements of the parameter
vector. Each row should hold the (1-based) index of the constrained parameter, followed by lower
and upper bounds. The values -$huge and $huge should be used to indicate that the parameter
is unconstrained downward or upward, respectively. For example, the following code constructs a
matrix to specify that the second element of the parameter vector must be non-negative, and the
fourth must lie between 0 and 1:
matrix bounds = {2, 0, $huge; 4, 0, 1}
Newton–Raphson
BFGS, discussed above, is an excellent all-purpose maximizer, and about as robust as possible given
the limitations of digital computer arithmetic. The Newton–Raphson maximizer is not as robust,
but may converge much faster than BFGS for problems where the maximand is reasonably well
behaved— in particular, where it is anything like quadratic (see below). The case for using Newton–
Raphson is enhanced if it is possible to supply a function to calculate the Hessian analytically.
The gretl function NRmax, which implements the Newton–Raphson method, has a maximum of four
arguments. The first two (required) arguments are exactly as for BFGS: an initial parameter vector,
and a function call which returns the maximand given the parameters. The (optional) third argu-
ment is again as in BFGS: a function call that calculates the gradient. Specific to NRmax is an optional
fourth argument, namely a function call to calculate the (negative) Hessian. The first argument of
this function must be a pre-defined matrix of the right dimension to hold the Hessian — that is, a
k × k matrix, where k is the length of the parameter vector — given in “pointer” form. The second
argument should be the parameter vector (optionally in pointer form). Other data may be passed
as additional arguments as needed. Similarly to the case with the gradient, if the fourth argument
to NRmax is omitted then a numerical approximation to the Hessian is constructed.
What is ultimately required in Newton–Raphson is the negative inverse of the Hessian. Note that
if you give the optional fourth argument, your function should compute the negative Hessian, but
should not invert it; NRmax takes care of inversion, with special handling for the case where the
matrix is not negative definite, which can happen far from the maximum.
Script 37.3 extends the Rosenbrock example, using NRmax with a function Rosen_hess to compute
the Hessian. The functions Rosenbrock and Rosen_grad are just the same as in Listing 37.2 and
are omitted for brevity.
Listing 37.3: Rosenbrock function via Newton–Raphson
function void Rosen_hess (matrix *H, const matrix param)

scalar x = param[1]
scalar y = param[2]
H[1,1] = 2 - 400*y + 1200*x^2
H[1,2] = -400*x
H[2,1] = -400*x
H[2,2] = 200
end function

matrix grad = {0, 0}
matrix H = zeros(2, 2)
set max_verbose 1
M = NRmax(&theta, Rosenbrock(theta), Rosen_grad(&grad, theta),
Rosen_hess(&H, theta))
print theta
print grad
The idea behind Newton–Raphson is to exploit a quadratic approximation to the maximand, under
the assumption that it is concave. If this is true, the method is very effective. However, if the
algorithm happens to evaluate the function at a point where the Hessian is not negative definite,
things may go wrong. Script 37.4 exemplifies this by using a normal density, which is concave in the
interval (−1, 1) and convex elsewhere. If the algorithm is started from within the interval everything
goes well and NR is (slightly) more effective than BFGS. If, however, the Hessian is positive at the
starting point BFGS converges with only little more difficulty, while Newton–Raphson fails.
37.2 Derivative-free optimization methods

Golden section search method
Suppose you have a function f (x) of a scalar argument, that is known to have a unique maximum.
The golden section method is rather effective at finding it quickly without making use of derivatives
(see Press et al. (2007), section 10.2 for a thorough description). The gretl function implementing
this method is called GSSmax.
The idea is, roughly, to take an interval [x0 , x1 ] (also known as the “bracket”) that should contain
the maximizing value. Once y0 = f (x0 ) and y1 = f (x1 ) are computed, the algorithm sets a new
point x2 that replaces the end of the previous interval for which the function takes the worse value.
So for example, if y0 < y1 , then x0 is replaced and the interval becomes [x1 , x2 ]. The width of the
interval shrinks progressively, so after a few iterations you should end close to the maximum.
As an illustration, consider the function f (x) = 50 · x 3/2 e−x , which is maximized at x = 1.5. The
following script sets as the initial interval the range [0, 10]:
function scalar g(scalar x)

Listing 37.4: Maximization of a Gaussian density [Download ▼]
function scalar ND(matrix x)

scalar z = x[1]
return exp(-0.5*z*z)
end function
set max_verbose 1
x = {0.75}
A = BFGSmax(&x, ND(x))
x = {0.75}
A = NRmax(&x, ND(x))
x = {1.5}
A = BFGSmax(&x, ND(x))
x = {1.5}
A = NRmax(&x, ND(x))
return 50 * x^(1.5) * exp(-x)

end function
set max_verbose on
m = {5, 0, 10}
y = GSSmax(&m, g(m[1]))
printf "\nf(%g) = %g\n", m[1], y
The output is
1: bracket={3.81966,6.18034}, values={8.18747,1.59001}
2: bracket={2.36068,3.81966}, values={17.1118,8.18747}
3: bracket={1.45898,2.36068}, values={20.4841,17.1118}
4: bracket={0.901699,1.45898}, values={17.3764,20.4841}
...
20: bracket={1.50017,1.50042}, values={20.4958,20.4958}
21: bracket={1.50001,1.50017}, values={20.4958,20.4958}
f(1.49996) = 20.4958
As you can see from the output, the bracket shrinks progressively; the center of the interval when
the algorithm stops is x = 1.49996; figure 37.1 gives a pictorial representation of the process,
where the blue line is the function to maximize and the red segments are the successive choices
for the bracket.
Simulated Annealing
Simulated annealing—as implemented by the gretl function simann— is not a full-blown maxi-
mization method in its own right, but can be a useful auxiliary tool in problems where convergence
depends sensitively on the initial values of the parameters. The idea is that you supply initial values
and the simulated annealing mechanism tries to improve on them via controlled randomization.
25
20
15
10
0
0 1 2 3 4 5 6 7
Figure 37.1: Golden section search method: example
The simann function takes up to three arguments. The first two (required) are the same as for
BFGSmax and NRmax: an initial parameter vector and a function that computes the maximand. The
optional third argument is a positive integer giving the maximum number of iterations, n, which
defaults to 1024.
Starting from the specified point in the parameter space, for each of n iterations we select at
random a new point within a certain radius of the previous one and determine the value of the
criterion at the new point. If the criterion is higher we jump to the new point; otherwise, we jump
with probability P (and remain at the previous point with probability 1 − P ). As the iterations
proceed, the system gradually “cools”— that is, the radius of the random perturbation is reduced,
as is the probability of making a jump when the criterion fails to increase.
In the course of this procedure n + 1 points in the parameter space are evaluated: call them θi , i =
0, . . . , n, where θ0 is the initial value given by the user. Let θ ∗ denote the “best” point among
θ1 , . . . , θn (highest criterion value). The value written into the parameter vector on completion is
then θ ∗ if θ ∗ is better than θ0 , otherwise θn . In other words, failing an actual improvement in
the criterion, simann randomizes the starting point, which may be helpful in tricky optimization
problems.
Listing 37.5 shows simann at work as a helper for BFGSmax in finding the maximum of a bimodal
function. Unaided, BFGSmax requires 60 function evaluations and 55 evaluations of the gradient,
while after simulated annealing the maximum is found with 7 function evaluations and 6 evalua-
tions of the gradient.1
Nelder–Mead
The Nelder–Mead derivative-free simplex maximizer (also known as the “amoeba” algorithm) is
implemented by the function NMmax. The argument list of this function is essentially the same as
for simann: the required arguments are an initial parameter vector and a function-call to compute
the maximand, while an optional third argument can be used to set the maximum number of
function evaluations (default value: 2000).
This method is unlikely to produce as close an approximation to the “true” optimum as derivative-
based methods such as BFGS and Newton–Raphson, but it is more robust than the latter. It may
succeed in some cases where derivative-based methods fail, and it may be useful, like simann, for
improving the starting point for an optimization problem so that a derivative-based method can
then take over successfully.
1 Your mileage may vary: these figures are somewhat compiler- and machine-dependent.
Listing 37.5: BFGS with initialization via Simulated Annealing [Download ▼]
function scalar bimodal (matrix x, matrix A)

scalar ret = exp(-qform((x-1)’, A))
ret += 2*exp(-qform((x+4)’, A))
return ret
end function
set seed 12334

set max_verbose on
scalar k = 2
matrix A = 0.1 * I(k)
matrix x0 = {3; -5}
x = x0
u = BFGSmax(&x, bimodal(x, A))
print x
x = x0
u = simann(&x, bimodal(x, A), 1000)
print x
u = BFGSmax(&x, bimodal(x, A))
print x
NMmax includes an internal “convergence” check — namely, verification that the best value achieved
for the objective function at termination of the algorithm is at least a local optimum — but by de-
fault it doesn’t flag an error if this condition is not satisfied. This permits a mode of usage where
you set a fairly tight budget of function evaluations (for example, 200) and just take any improve-
ment in the objective function that is available, without worrying about whether an optimum has
truly been reached. However, if you want the convergence check to be enforced you can flag this by
setting a negative value for the maximum function evaluations argument; in that case the absolute
value of the argument is taken and an error is provoked on non-convergence.
If the task for this function is actually minimization, you can either have the function-call return
the negative of the actual criterion or, if you prefer, call NMmax under the alias NMmin.
Here is an example of use: minimization of the Powell quartic function, which is problematic for
BFGS. (The true minimum is zero, obtained for x a 4-vector of zeros.)
function scalar powell (const matrix x)

fx1 = x[1] + 10 * x[2]
fx2 = x[3] - x[4]
fx3 = x[2] - 2 * x[3]
fx4 = x[1] - x[4]
return fx1^2 + 5.0 * fx2^2 + fx3^4 + 10.0 * fx4^4
end function
matrix x = {3, -1, 0, 1}’

printf "Initial f(X) = %g\n", powell(x)
fmin = NMmin(x, powell(x))
printf "Estimate of optimal X*:\n%14f\n", x
printf "f(X*) = %g\n", fmin
37.3 Numerical differentiation

Computing a Jacobian
Gretl offers the possibility of differentiating numerically a user-defined function via the fdjac
function.
This function takes two arguments: an n × 1 matrix holding initial parameter values and a function
call that calculates and returns an m × 1 matrix, given the current parameter values and any other
relevant data. On successful completion it returns an m × n matrix holding the Jacobian. For
example,
matrix Jac = fdjac(theta, SumOC(&theta, &X))
where we assume that SumOC is a user-defined function with the following structure:
function matrix SumOC (matrix *theta, matrix *X)

matrix V = ... # do some computation
return V
end function
This may come in handy in several cases: for example, if you use BFGSmax to estimate a model, you
may wish to calculate a numerical approximation to the relevant Jacobian to construct a covariance
matrix for your estimates.
Another example is the delta method: if you have a consistent estimator of a vector of parameters
θ̂, and a consistent estimate of its covariance matrix Σ, you may need to compute estimates for a
nonlinear continuous transformation ψ = g(θ). In this case, a standard result in asymptotic theory
is that
p
 ψ̂ = g(θ̂) −p→ ψ = g(θ) 
   
 θ̂ −→ θ 
=⇒
 √T θ̂ − θ −d→ N(0, Σ)   √T ψ̂ − ψ −d→ N(0, JΣJ ′ ) 

∂g(x)
where T is the sample size and J is the Jacobian ∂x .
x=θ
Script 37.6 exemplifies such a case: the example is taken from Greene (2003), section 9.3.1. The
slight differences between the results reported in the original source and what gretl returns are due
to the fact that the Jacobian is computed numerically, rather than analytically as in the book.
On the subject of numerical versus analytical derivatives, one may wonder what difference it makes
to use one method or another. Simply put, the answer is: analytical derivatives may be painful to
derive and to translate into code, but in most cases they are much faster than using fdjac; as a
consequence, if you need to use derivatives as part of an algorithm that requires iteration (such
as numerical optimization, or a Monte Carlo experiment), you’ll definitely want to use analytical
derivatives.
Analytical derivatives are also, in most cases, more precise than numerical ones, but this advantage
may or may not be negligible in practice depending on the practical details: the two fundamental
aspects to take in consideration are nonlinearity and machine precision.
As an example, consider the derivative of a highly nonlinear function such as the matrix inverse. In
order to keep the example simple, let’s focus on 2 × 2 matrices and define the function
function matrix vecinv(matrix x)

A = mshape(x,2,2)
return vec(inv(A))’
end function
which, given vec(A), returns vec(A−1 ). As is well known (see for example Magnus and Neudecker
(1988)),
∂vec(A−1 )
= −(A−1 )′ ⊗ (A−1 ),
∂vec(A)
Listing 37.6: Delta Method [Download ▼]
function matrix MPC(matrix *param, matrix *Y)

beta = param[2]
gamma = param[3]
y = Y[1]
return beta*gamma*y^(gamma-1)
end function
# William Greene, Econometric Analysis, 5e, Chapter 9

set echo off
set messages off
open greene5_1.gdt
# Use OLS to initialize the parameters

ols realcons 0 realdpi --quiet
a = $coeff(0)
b = $coeff(realdpi)
g = 1.0
# Run NLS with analytical derivatives

nls realcons = a + b * (realdpi^g)
deriv a = 1
deriv b = realdpi^g
deriv g = b * realdpi^g * log(realdpi)
end nls
matrix Y = realdpi[2000:4]
matrix theta = $coeff
matrix V = $vcv
mpc = MPC(&theta, &Y)

matrix Jac = fdjac(theta, MPC(&theta, &Y))
Sigma = qform(Jac, V)
printf "\nmpc = %g, std.err = %g\n", mpc, sqrt(Sigma)

scalar teststat = (mpc-1)/sqrt(Sigma)
printf "\nTest for MPC = 1: %g (p-value = %g)\n", \
teststat, pvalue(n,abs(teststat))
which is rather easy to code in hansl as
function matrix grad(matrix x)

iA = inv(mshape(x,2,2))
return -iA’ ** iA
end function
Using the fdjac function to obtain the same result is even easier: you just invoke it like
fdjac(a, "vecinv(a)")
In order to see what the difference

" is,# in terms of precision, between analytical and numerical
2 1
Jacobians, let’s start from A = . The following code
1 1
a = {2; 1; 1; 1}
ia = vecinv(a)
ag = grad(a)
ng = fdjac(a, "vecinv(a)")
dg = ag - ng
print ag ng dg
gives
ag (4 x 4)
-1 1 1 -1
1 -2 -1 2
1 -1 -2 2
-1 2 2 -4
ng (4 x 4)
-1 1 1 -1
1 -2 -1 2
1 -1 -2 2
-1 2 2 -4
dg (4 x 4)
-3.3530e-08 -3.7251e-08 -3.7251e-08 -3.7255e-08

2.6079e-08 5.2150e-08 3.7251e-08 6.7060e-08
2.6079e-08 3.7251e-08 5.2150e-08 6.7060e-08
-2.2354e-08 -5.9600e-08 -5.9600e-08 -1.4902e-07
in which the analytically-computed

" derivative and
# its numerical approximation are essentially the
1.0001 1
same. If, however, you set A = you end up evaluating the function at a point in
1 1
which the function itself is considerably more nonlinear since the matrix is much closer to being
singular. As a consequence, the numerical approximation becomes much less satisfactory:
ag (4 x 4)
-1.0000e+08 1.0000e+08 1.0000e+08 -1.0000e+08

1.0000e+08 -1.0001e+08 -1.0000e+08 1.0001e+08
1.0000e+08 -1.0000e+08 -1.0001e+08 1.0001e+08
-1.0000e+08 1.0001e+08 1.0001e+08 -1.0002e+08
ng (4 x 4)
-9.9985e+07 1.0001e+08 1.0001e+08 -9.9985e+07

9.9985e+07 -1.0002e+08 -1.0001e+08 9.9995e+07
9.9985e+07 -1.0001e+08 -1.0002e+08 9.9995e+07
-9.9985e+07 1.0002e+08 1.0002e+08 -1.0001e+08
dg (4 x 4)
-14899. -14901. -14901. -14900.

14899. 14903. 14901. 14902.
14899. 14901. 14903. 14902.
-14899. -14903. -14903. -14903.
" #
2 1
Moreover, machine precision may have its impact: if you take A = 0.00001 × , the matrix
1 1
itself is not singular at all, but the order of magnitude of its elements is close enough to machine
precision to provoke problems:
ag (4 x 4)
-1.0000e+10 1.0000e+10 1.0000e+10 -1.0000e+10

1.0000e+10 -2.0000e+10 -1.0000e+10 2.0000e+10
1.0000e+10 -1.0000e+10 -2.0000e+10 2.0000e+10
-1.0000e+10 2.0000e+10 2.0000e+10 -4.0000e+10
ng (4 x 4)
-1.0000e+10 1.0000e+10 1.0000e+10 -1.0000e+10

1.0000e+10 -2.0000e+10 -1.0000e+10 2.0000e+10
1.0000e+10 -1.0000e+10 -2.0000e+10 2.0000e+10
-1.0000e+10 2.0000e+10 2.0000e+10 -4.0000e+10
dg (4 x 4)
-488.30 -390.60 -390.60 -195.33

634.79 781.21 390.60 585.98
634.79 488.26 683.55 585.98
-781.27 -976.52 -781.21 -1367.3
Computing a Hessian
In principle, you can use the fdjac function repeatedly to evaluate higher-order derivatives. How-
ever, you should be aware that you may encounter rather serious numerical issues. For this reason,
gretl provides a function, similar to fdjac, for computing a Hessian directly, called numhess.
An example follows:
function scalar quad(matrix x, matrix A )

return 0.5*qform(x’, A)
end function
function matrix coljac(matrix x, matrix A)

return fdjac(x, quad(x, A))’
end function
A = {23, -11; -11, 118}

x = {1;1}
set fdjac_quality 2
H0 = fdjac(x, "coljac(x, A)")
H1 = numhess(x, "quad(x, A)")
printf "\n%14.8f", H0
printf "\n%14.8f", H1
In this example, we use the function quad for evaluating a simple quadratic form f (x) = 12 x ′ Ax,
for which the Hessian is trivially the matrix A. The matrix H0 is obtained by using fdjac twice
(at its best quality, that is with Richardson extrapolation on); the matrix H1, instead, is obtained
directly via the numhess function. The result of the above script is:
22.99788411 -10.99983724
-10.99902343 117.99161784
23.00000000 -11.00000000
-11.00000000 118.00000000
which makes it apparent how much better the second result is (note that H0 is not even symmetric,
as it should be).
37.4 Numerical integration

The main tool that gretl offers in this area is integration via Gaussian quadrature. In practice, the
evaluation of an integral of the kind
Z
C= f (x)ω(x)dx (37.1)
A
is approximated via a suitable linear combination of the form

q
X
C≃ f (xi )w(xi ), (37.2)
i=1
where the q “quadrature points” x1 , x2 , . . . , xq are suitably chosen and the corresponding weights
w(xi ) ensure that the approximation is optimal.
The quadtable function provides quadrature points and weights for the following list of problems:
Integral Technique Note

R∞ −x 2
−∞ f (x)e dx Gauss–Hermite see below for the relationship with the
Gaussian distribution
R∞
0 f (x)e−x dx Gauss–Laguerre can be used for evaluating Laplace
transforms numerically
Rb
a f (x)dx Gauss–Legendre by default, a = 0 and b = 1
The quadtable function returns a q × 2 matrix with the xi points in the first column and the
corresponding weights wi in the second, so in practice you compute the desired integral of f (x)
by applying that function to the first column and then computing the inner product of the result
by the second column.
In econometrics, Gaussian quadrature is most commonly used for evaluating expectations of func-
tions of Gaussian random variables, that is, integrals of the form
Z∞
E [f (X)] = f (x)ϕ(x)dx
−∞
In this case, Gauss–Hermite quadrature can be readily applied, provided

√ one modifies the integral
above via a suitable change of variable, namely by defining z = x/ 2 so that
Z∞ Z∞
1 2 1 √ 2
f (x) √ e−x /2 dx = √ f ( 2 · z) · e−z dz
−∞ 2π π −∞
For example, consider the following script, in which we evaluate E(eX ) and E[cos(X)] via Gaussian
quadrature.
q = 10
Q = quadtable(q)
x = exp(sqrt(2) * Q[,1])
w = Q[,2] ./ sqrt($pi)
printf "E(exp(x)) = %16.14f (exact = %16.14f)\n", x’w, exp(0.5)
x = cos(sqrt(2) * Q[,1])
w = Q[,2] ./ sqrt($pi)
printf "E(cos(x)) = %16.14f (exact = %16.14f)\n", x’w, exp(-0.5)
The result is
E(exp(x)) = 1.64872127069823 (exact = 1.64872127070013)

E(cos(x)) = 0.60653065971146 (exact = 0.60653065971263)
Higher values of q will give a more precise approximation.

In fact, the full form of quadtable—which supports three optional arguments besides the required
q —provides a shortcut which saves you the hassle of having to recalculate the integral with the
change of variable. Suppose you want something like
C = E [f (X)] X ∼ N(µ, σ 2 )
Then you can use the syntax quadtable(q, 1, m, s), where the 1 indicates Gauss–Hermite inte-
gration and the two final arguments give the mean and standard deviation. So for example if you
want to compute E(X 2 ), where X ∼ N(1, 0.25), you could use
# Note: no rescaling needed

Q = quadtable(q, 1, 1, 0.5)
printf "E(X^2) = %6.4f (exact = %6.4f)\n", (Q[,1].^2)’Q[,2], 1.25
which yields
E(X^2) = 1.2500 (exact = 1.2500)
See the Gretl Command Reference for more details.

Chapter 38
Discrete and censored dependent variables
This chapter deals with models for dependent variables that are discrete or censored or otherwise
limited (as in event counts or durations, which must be positive) and that therefore call for estima-
tion methods other than the classical linear model. We discuss several estimators (mostly based on
the Maximum Likelihood principle), adding some details and examples to complement the material
on these methods in the Gretl Command Reference.
38.1 Logit and probit models

It often happens that one wants to specify and estimate a model in which the dependent variable
is not continuous, but discrete. A typical example is a model in which the dependent variable is
the occupational status of an individual (1 = employed, 0 = unemployed). A convenient way of
formalizing this situation is to consider the variable yi as a Bernoulli random variable and analyze
its distribution conditional on the explanatory variables xi . That is,
(
1 Pi
yi = (38.1)
0 1 − Pi
where Pi = P (yi = 1|xi ) is a given function of the explanatory variables xi .

In most cases, the function Pi is a cumulative distribution function F , applied to a linear combi-
nation of the xi s. In the probit model, the normal cdf is used, while the logit model employs the
logistic function Λ(). Therefore, we have
probit Pi = F (zi ) = Φ(zi ) (38.2)

1
logit Pi = F (zi ) = Λ(zi ) = (38.3)
1 + e−zi
Xk
zi = xij βj (38.4)
j=1
where zi is commonly known as the index function. Note that in this case the coefficients βj cannot
be interpreted as the partial derivatives of E(yi |xi ) with respect to xij . However, for a given value
of xi it is possible to compute the vector of “slopes”, that is

∂F (z)
slopej (x̄) =

∂xj z=z̄
Gretl automatically computes the slopes, setting each explanatory variable at its sample mean.
Another, equivalent way of thinking about this model is in terms of an unobserved variable yi∗
which can be described thus:
k
X
yi∗ = xij βj + εi = zi + εi (38.5)
j=1
We observe yi = 1 whenever yi∗

> 0 and yi = 0 otherwise. If εi is assumed to be normal, then we
have the probit model. The logit model arises if we assume that the density function of εi is
∂Λ(εi ) e−εi
λ(εi ) = =
∂εi (1 + e−εi )2
371
Chapter 38. Discrete and censored dependent variables 372
Both the probit and logit model are estimated in gretl via maximum likelihood, where the log-
likelihood can be written as
X X
L(β) = ln[1 − F (zi )] + ln F (zi ), (38.6)
yi =0 yi =1
which is always negative, since 0 < F (·) < 1. Since the score equations do not have a closed form
solution, numerical optimization is used. However, in most cases this is totally transparent to the
user, since usually only a few iterations are needed to ensure convergence. The --verbose switch
can be used to track the maximization algorithm.
Listing 38.1: Estimation of simple logit and probit models [Download ▼]
open greene19_1
logit GRADE const GPA TUCE PSI

probit GRADE const GPA TUCE PSI
As an example, we reproduce the results given in chapter 21 of Greene (2000), where the effective-
ness of a program for teaching economics is evaluated by the improvements of students’ grades.
Running the code in Listing 38.1 gives the output reported in Table 38.1. Note that for the probit
model a conditional moment test on skewness and kurtosis (Bera, Jarque and Lee, 1984) is printed
automatically as a test for normality.
In this context, the $uhat accessor function takes a special meaning: it returns generalized resid-
uals as defined in Gourieroux, Monfort, Renault and Trognon (1987), which can be interpreted as
unbiased estimators of the latent disturbances εi . These are defined as

 yi − P̂i for the logit model
ui = (38.7)
 yi · φ(ẑi ) − (1 − yi ) · φ(ẑi ) for the probit model
Φ(ẑi ) 1−Φ(ẑi )
Among other uses, generalized residuals are often used for diagnostic purposes. For example, it is
very easy to set up an omitted variables test equivalent to the familiar LM test in the context of a
linear regression; example 38.2 shows how to perform a variable addition test.
Listing 38.2: Variable addition test in a probit model [Download ▼]
open greene19_1
probit GRADE const GPA PSI

series u = $uhat
ols u const GPA PSI TUCE -q
printf "Variable addition test for TUCE:\n"
printf "Rsq * T = %g (p. val. = %g)\n", $trsq, pvalue(X,1,$trsq)
The perfect prediction problem

One curious characteristic of logit and probit models is that (quite paradoxically) estimation is not
feasible if a model fits the data perfectly; this is called the perfect prediction problem. The reason
Model 1: Logit estimates using the 32 observations 1-32

Dependent variable: GRADE
VARIABLE COEFFICIENT STDERROR T STAT SLOPE

(at mean)
const -13.0213 4.93132 -2.641
GPA 2.82611 1.26294 2.238 0.533859
TUCE 0.0951577 0.141554 0.672 0.0179755
PSI 2.37869 1.06456 2.234 0.449339
Mean of GRADE = 0.344

Number of cases ’correctly predicted’ = 26 (81.2%)
f(beta’x) at mean of independent vars = 0.189
McFadden’s pseudo-R-squared = 0.374038
Likelihood ratio test: Chi-square(3) = 15.4042 (p-value 0.001502)
Akaike information criterion (AIC) = 33.7793
Schwarz Bayesian criterion (BIC) = 39.6422
Hannan-Quinn criterion (HQC) = 35.7227
Predicted
0 1
Actual 0 18 3
1 3 8
Model 2: Probit estimates using the 32 observations 1-32

Dependent variable: GRADE
VARIABLE COEFFICIENT STDERROR T STAT SLOPE

(at mean)
const -7.45232 2.54247 -2.931
GPA 1.62581 0.693883 2.343 0.533347
TUCE 0.0517288 0.0838903 0.617 0.0169697
PSI 1.42633 0.595038 2.397 0.467908
Mean of GRADE = 0.344

f(beta’x) at mean of independent vars = 0.328
McFadden’s pseudo-R-squared = 0.377478
Likelihood ratio test: Chi-square(3) = 15.5459 (p-value 0.001405)
Akaike information criterion (AIC) = 33.6376
Schwarz Bayesian criterion (BIC) = 39.5006
Hannan-Quinn criterion (HQC) = 35.581
Predicted
0 1
Actual 0 18 3
1 3 8
Test for normality of residual -

Null hypothesis: error is normally distributed
Test statistic: Chi-square(2) = 3.61059
with p-value = 0.164426
Table 38.1: Example logit and probit output

why this problem arises is easy to see by considering equation (38.6): if for some vector β and scalar
k it’s the case that zi < k whenever yi = 0 and zi > k whenever yi = 1, the same thing is true
for any multiple of β. Hence, L(β) can be made arbitrarily close to 0 simply by choosing enormous
values for β. As a consequence, the log-likelihood has no maximum, despite being bounded.
Gretl has a mechanism for preventing the algorithm from iterating endlessly in search of a non-
existent maximum. One sub-case of interest is when the perfect prediction problem arises because
of a single binary explanatory variable. In this case, the offending variable is dropped from the
model and estimation proceeds with the reduced specification. Nevertheless, it may happen that
no single “perfect classifier” exists among the regressors, in which case estimation is simply impos-
sible and the algorithm stops with an error. This behavior is triggered during the iteration process
if
max zi < min zi
i:yi =0 i:yi =1
If this happens, unless your model is trivially mis-specified (like predicting if a country is an oil
exporter on the basis of oil revenues), it is normally a small-sample problem: you probably just
don’t have enough data to estimate your model. You may want to drop some of your explanatory
variables.
This problem is well analyzed in Stokes (2004); the results therein are replicated in the example
script murder_rates.inp.
38.2 Ordered response models

These models constitute a simple variation on ordinary logit/probit models, and are usually applied
when the dependent variable is a discrete and ordered measurement — not simply binary, but on
an ordinal rather than an interval scale. For example, this sort of model may be applied when the
dependent variable is a qualitative assessment such as “Good”, “Average” and “Bad”.
In the general case, consider an ordered response variable, y, that can take on any of the J+1 values
0, 1, 2, . . . , J. We suppose, as before, that underlying the observed response is a latent variable,
y ∗ = Xβ + ε = z + ε
Now define “cut points”, α1 < α2 < · · · < αJ , such that
y =0 if y ∗ ≤ α1
y =1 if α1 < y ∗ ≤ α2
..
.
y =J if y ∗ > αJ
For example, if the response takes on three values there will be two such cut points, α1 and α2 .
The probability that individual i exhibits response j, conditional on the characteristics xi , is then
given by

∗
 P (y ≤ α1 | xi ) = F (α1 − zi ) for j = 0


P (yi = j | xi ) = P (αj < y ∗ ≤ αj+1 | xi ) = F (αj+1 − zi ) − F (αj − zi ) for 0 < j < J (38.8)

 P (y ∗ > α | x ) = 1 − F (α − z )

for j = J
J i J i
The unknown parameters αj are estimated jointly with the βs via maximum likelihood. The α̂j
estimates are reported by gretl as cut1, cut2 and so on. For the probit variant, a conditional
moment test for normality constructed in the spirit of Chesher and Irish (1987) is also included.
Note that the αj parameters can be shifted arbitrarily by adding a constant to zi , so the model is
under-identified if there is some linear combination of the explanatory variables which is constant.
The most obvious case in which this occurs is when the model contains a constant term; for this
reason, gretl drops automatically the intercept if present. However, it may happen that the user in-
adventently specifies a list of regressors that may be combined in such a way to produce a constant
(for example, by using a full set of dummy variables for a discrete factor). If this happens, gretl will
also drop any offending regressors.
In order to apply these models in gretl, the dependent variable must either take on only non-
negative integer values, or be explicitly marked as discrete. (In case the variable has non-integer
values, it will be recoded internally.) Note that gretl does not provide a separate command for
ordered models: the logit and probit commands automatically estimate the ordered version if
the dependent variable is acceptable, but not binary.
Listing 38.3 reproduces the results presented in section 15.10 of Wooldridge (2002a). The question
of interest in this analysis is what difference it makes, to the allocation of assets in pension funds,
whether individual plan participants have a choice in the matter. The response variable is an ordinal
measure of the weight of stocks in the pension portfolio. Having reported the results of estimation
of the ordered model, Wooldridge illustrates the effect of the choice variable by reference to an
“average” participant. The example script shows how one can compute this effect in gretl.
After estimating ordered models, the $uhat accessor yields generalized residuals as in binary mod-
els; additionally, the $yhat accessor function returns ẑi , so it is possible to compute an unbiased
estimator of the latent variable yi∗ simply by adding the two together.
38.3 Multinomial logit

When the dependent variable is not binary and does not have a natural ordering, multinomial
models are used. Multinomial logit is supported in gretl via the --multinomial option to the
logit command. Simple models can also be handled via the mle command (see chapter 26). We
give here an example of such a model. Let the dependent variable, yi , take on integer values
0, 1, . . . p. The probability that yi = k is given by
exp(xi βk )
P (yi = k|xi ) = Pp
j=0 exp(xi βj )
For the purpose of identification one of the outcomes must be taken as the “baseline”; it is usually
assumed that β0 = 0, in which case
exp(xi βk )
P (yi = k|xi ) = Pp
1+ j=1 exp(xi βj )
and
1
P (yi = 0|xi ) = Pp .
1+ j=1 exp(xi βj )
Listing 38.4 reproduces Table 15.2 in Wooldridge (2002a), based on data on career choice from
Keane and Wolpin (1997). The dependent variable is the occupational status of an individual (0 = in
school; 1 = not in school and not working; 2 = working), and the explanatory variables are education
and work experience (linear and square) plus a “black” binary variable. The full data set is a panel;
here the analysis is confined to a cross-section for 1987.
38.4 Bivariate probit

The bivariate probit model is a two-equation system in which each equation is a probit model and
the two disturbance terms may not be independent. In formulae,
k1
X
∗ ∗
y1,i = xij βj + ε1,i y1,i = 1 ⇐⇒ y1,i >0 (38.9)
j=1
Listing 38.3: Ordered probit model [Download ▼]
/*
Replicate the results in Wooldridge, Econometric Analysis of Cross
Section and Panel Data, section 15.10, using pension-plan data from
Papke (AER, 1998).
The dependent variable, pctstck (percent stocks), codes the asset

allocation responses of "mostly bonds", "mixed" and "mostly stocks"
as {0, 50, 100}.
The independent variable of interest is "choice", a dummy indicating

whether individuals are able to choose their own asset allocations.
*/
open pension.gdt
# demographic characteristics of participant

list DEMOG = age educ female black married
# dummies coding for income level
list INCOME = finc25 finc35 finc50 finc75 finc100 finc101
# Papke’s OLS approach

ols pctstck const choice DEMOG INCOME wealth89 prftshr
# save the OLS choice coefficient
choice_ols = $coeff(choice)
# estimate ordered probit

probit pctstck choice DEMOG INCOME wealth89 prftshr
k = $ncoeff
matrix b = $coeff[1:k-2]
a1 = $coeff[k-1]
a2 = $coeff[k]
/*
Wooldridge illustrates the ’choice’ effect in the ordered probit
by reference to a single, non-black male aged 60, with 13.5 years
of education, income in the range $50K - $75K and wealth of $200K,
participating in a plan with profit sharing.
*/
matrix X = {60, 13.5, 0, 0, 0, 0, 0, 0, 1, 0, 0, 200, 1}
# with ’choice’ = 0
scalar Xb = (0 ~ X) * b
P0 = cdf(N, a1 - Xb)
P50 = cdf(N, a2 - Xb) - P0
P100 = 1 - cdf(N, a2 - Xb)
E0 = 50 * P50 + 100 * P100
# with ’choice’ = 1
Xb = (1 ~ X) * b
P0 = cdf(N, a1 - Xb)
P50 = cdf(N, a2 - Xb) - P0
P100 = 1 - cdf(N, a2 - Xb)
E1 = 50 * P50 + 100 * P100
printf "\nWith choice, E(y) = %.2f, without E(y) = %.2f\n", E1, E0

printf "Estimated choice effect via ML = %.2f (OLS = %.2f)\n", E1 - E0,
choice_ols
Listing 38.4: Multinomial logit

Input:
open keane.gdt
smpl year==87 --restrict
logit status 0 educ exper expersq black --multinomial

Model 1: Multinomial Logit, using observations 1-1738 (n = 1717)
Missing or incomplete observations dropped: 21
Dependent variable: status
Standard errors based on Hessian

--------------------------------------------------------
status = 2
const 10.2779 1.13334 9.069 1.20e-19 ***
educ -0.673631 0.0698999 -9.637 5.57e-22 ***
exper -0.106215 0.173282 -0.6130 0.5399
expersq -0.0125152 0.0252291 -0.4961 0.6199
black 0.813017 0.302723 2.686 0.0072 ***
status = 3
const 5.54380 1.08641 5.103 3.35e-07 ***
educ -0.314657 0.0651096 -4.833 1.35e-06 ***
exper 0.848737 0.156986 5.406 6.43e-08 ***
expersq -0.0773003 0.0229217 -3.372 0.0007 ***
black 0.311361 0.281534 1.106 0.2687


Likelihood ratio test: Chi-square(8) = 583.722 [0.0000]
k2
X
∗ ∗
y2,i = zij γj + ε2,i y2,i = 1 ⇐⇒ y2,i >0 (38.10)
j=1
" # " !#
ε1,i 1 ρ
∼ N 0, (38.11)
ε2,i ρ 1
If ρ were 0, ML estimation of the parameters βj and γj could be accomplished by estimating the

two equations separately. In the general case, however, joint estimation is required for maximal
efficiency.
The gretl command for this model is biprobit, which performs ML estimation via numerical op-
timization using the Newton–Raphson method with analytical derivatives. An example of usage is
provided in the biprobit.inp sample script. The command takes either three or four arguments,
the first three being series names for y1 and y2 and a list of explanatory variables. In the common
case when the regressors are the same for the two equations this is sufficient, but if z differs from
x a second list should be appended following a semicolon, as in:
biprobit y1 y2 X ; Z
Output from estimation includes a Likelihood Ratio test for the hypothesis ρ = 0.1 This can be
retrieved in the form of a bundle named independence_test under the $model accessor, as in
? eval $model.independence_test
bundle:
dfn = 1
test = 204.066
pvalue = 2.70739e-46
Since biprobit estimates a two-equation system, the $uhat and $yhat accessors provide ma-
trices rather than series as usual. Specifically, $uhat gives a two-column matrix containing the
generalized residuals, while $yhat contains four columns holding the estimated probabilities of
the possible joint outcomes: (y1,i , y1,i ) = (1, 1) in column 1, (y1,i , y2,i ) = (1, 0) in column 2,
(y1,i , y2,i ) = (0, 1) in column 3 and (y1,i , y2,i ) = (0, 0) in column 4.
38.5 Panel estimators

When your dataset is a panel, the traditional choice for binary dependent variable models was,
for many years, to use logit with fixed effects and probit with random effects (see 23.1 for a brief
discussion of this dichotomy in the context of linear models). Nowadays the choice is somewhat
wider but the two traditional models are by and large what practitioners use as routine tools.
Gretl provides FE logit via the function package felogit,2 RE probit natively. Provided your dataset
has a panel structure, the latter option can be obtained by adding the --random option to the
probit command:
probit depvar const indvar1 indvar2 --random
as exemplified in the reprobit.inp sample script. The numerical technique used for this particular
estimator is Gauss-Hermite quadrature, which we’ll now briefly describe. Generalizing equation
(38.5) to a panel context, we get
k
X
∗
yi,t = xijt βj + αi + εi,t = zi,t + ωi,t (38.12)
j=1
1 Note that if the --robust option is given to biprobit—and therefore the estimator is meant to be QMLE—this test
may not be valid, even asymptotically.

2 See http://gretl.sourceforge.net/current_fnfiles/felogit.gfn.
in which we assume that the individual effect, αi , and the disturbance term, εi,t , are mutually
independent zero-mean Gaussian random variables. The composite error term, ωi,t = αi + εi,t , is
therefore a normal r. v. with mean zero and variance 1 + σα2 . Because of the individual effect, αi ,
observations for the same unit are not independent; the likelihood therefore has to be evaluated
on a per-unit basis, as
ℓi = log P yi,1 , yi,2 , . . . , yi,T .
and there’s no way to write the above as a product of individual terms.
However, the above probability could be written as a product if we were to treat αi as a constant;
in that case we would have
 
T
X xijt β j + α i
ℓi |αi = Φ (2yi,t − 1) q 
2
t=1 1 + σα
so that we can compute ℓi by integrating αi out as

Z∞
ϕ(αi )
ℓi = E ℓi |αi = (ℓi |αi ) q dαi
−∞ 1 + σα2
The technique known as Gauss–Hermite quadrature is simply a way of approximating the above
integral via a sum of carefully chosen terms:3
m
X
ℓi ≃ (ℓi |αi = nk )wk
k=1
where the numbers nk and wk are known as quadrature points and weights, respectively. Of course,
accuracy improves with higher values of m, but so does CPU usage. Note that this technique can
also be used in more general cases by using the quadtable() function and the mle command via
the apparatus described in chapter 26. Here, however, the calculations were hard-coded in C for
maximal speed and efficiency.
Experience shows that a reasonable compromise can be achieved in most cases by choosing m in
the order of 20 or so; gretl uses 32 as a default value, but this can be changed via the --quadpoints
option, as in
probit y const x1 x2 x3 --random --quadpoints=48
38.6 The Tobit model

The Tobit model is used when the dependent variable of a model is censored. Assume a latent
variable yi∗ can be described as
k
X
yi∗ = xij βj + εi ,
j=1
2
where εi ∼ N(0, σ ). If yi∗
were observable, the model’s parameters could be estimated via ordinary
least squares. On the contrary, suppose that we observe yi , defined as

 a

 for yi∗ ≤ a
yi = yi∗ for a < yi∗ < b (38.13)

 b for y ∗ ≥ b

i
In most cases found in the applied literature, a = 0 and b = ∞, so in practice negative values of yi∗
are not observed and are replaced by zeros.
3 Some have suggested using a more refined method called adaptive Gauss-Hermite quadrature; this is not imple-
mented in gretl.
In this case, regressing yi on the xi s does not yield consistent estimates of the parameters β,
Pk
because the conditional mean E(yi |xi ) is not equal to j=1 xij βj . It can be shown that restricting
the sample to non-zero observations would not yield consistent estimates either. The solution is to
estimate the parameters via maximum likelihood. The syntax is simply
tobit depvar indvars
As usual, progress of the maximization algorithm can be tracked via the --verbose switch, while
$uhat returns the generalized residuals. Note that in this case the generalized residual is defined
as ûi = E(εi |yi = 0) for censored observations, so the familiar equality ûi = yi − ŷi only holds for
uncensored observations, that is, when yi > 0.
An important difference between the Tobit estimator and OLS is that the consequences of non-
normality of the disturbance term are much more severe: non-normality implies inconsistency for
the Tobit estimator. For this reason, the output for the Tobit model includes the Chesher and Irish
(1987) normality test by default.
The general case in which a is nonzero and/or b is finite can be handled by using the options
--llimit and --rlimit. So, for example,
tobit depvar indvars --llimit=10
would tell gretl that the left bound a is set to 10.
38.7 Interval regression

The interval regression model arises when the dependent variable is unobserved for some (possibly
all) observations; what we observe instead is an interval in which the dependent variable lies. In
other words, the data generating process is assumed to be
yi∗ = xi β + ϵi
but we only know that mi ≤ yi∗ ≤ Mi , where the interval may be left- or right-unbounded (but
not both). If mi = Mi , we effectively observe yi∗ and no information loss occurs. In practice, each
observation belongs to one of four categories:
1. left-unbounded, when mi = −∞,
2. right-unbounded, when Mi = ∞,
3. bounded, when −∞ < mi < Mi < ∞ and
4. point observations when mi = Mi .
It is interesting to note that this model bears similarities to other models in several special cases:
• When all observations are point observations the model trivially reduces to the ordinary linear
regression model.
• The interval model could be thought of as an ordered probit model (see 38.2) in which the cut
points (the αj coefficients in eq. 38.8) are observed and don’t need to be estimated.
• The Tobit model (see 38.6) is a special case of the interval model in which mi and Mi do not
depend on i, that is, the censoring limits are the same for all observations. As a matter of
fact, gretl’s tobit command is handled internally as a special case of the interval model.
The gretl command intreg estimates interval models by maximum likelihood, assuming normality
of the disturbance term ϵi . Its syntax is
intreg minvar maxvar X
where minvar contains the mi series, with NAs for left-unbounded observations, and maxvar con-
tains Mi , with NAs for right-unbounded observations. By default, standard errors are computed
using the negative inverse of the Hessian. If the --robust flag is given, then QML or Huber–White
standard errors are calculated instead. In this case the estimated covariance matrix is a “sandwich”
of the inverse of the estimated Hessian and the outer product of the gradient.
If the model specification contains regressors other than just a constant, the output includes a
chi-square statistic for testing the joint null hypothesis that none of these regressors has any
effect on the outcome. This is a Wald statistic based on the estimated covariance matrix. If you
wish to construct a likelihood ratio test, this is easily done by estimating both the full model
and the null model (containing only the constant), saving the log-likelihood in both cases via the
$lnl accessor, and then referring twice the difference between the two log-likelihoods to the chi-
square distribution with k degrees of freedom, where k is the number of additional regressors (see
the pvalue command in the Gretl Command Reference). Also included is a conditional moment
normality test, similar to those provided for the probit, ordered probit and Tobit models (see
above). An example is contained in the sample script wtp.inp, provided with the gretl distribution.
As with the probit and Tobit models, after a model has been estimated the $uhat accessor returns
the generalized residual, which is an estimate of ϵi : more precisely, it equals yi − xi β̂ for point
observations and E(ϵi |mi , Mi , xi ) otherwise. Note that it is possible to compute an unbiased pre-
dictor of yi∗ by summing this estimate to xi β̂. Script 38.5 shows an example. As a further similarity
with Tobit, the interval regression model may deliver inconsistent estimates if the disturbances are
non-normal; hence, the Chesher and Irish (1987) test for normality is included by default here too.
38.8 Sample selection model

In the sample selection model (also known as “Tobit II” model), there are two latent variables:
k
X
yi∗ = xij βj + εi (38.14)
j=1
p
X
si∗ = zij γj + ηi (38.15)
j=1
and the observation rule is given by

yi∗ for si∗ > 0
(
yi = (38.16)
♦ for si∗ ≤ 0
In this context, the ♦ symbol indicates that for some observations we simply do not have data on
y: yi may be 0, or missing, or anything else. A dummy variable di is normally used to set censored
observations apart.
One of the most popular applications of this model in econometrics is a wage equation coupled
with a labor force participation equation: we only observe the wage for the employed. If yi∗ and si∗
were (conditionally) independent, there would be no reason not to use OLS for estimating equation
(38.14); otherwise, OLS does not yield consistent estimates of the parameters βj .
Since conditional independence between yi∗ and si∗ is equivalent to conditional independence be-
tween εi and ηi , one may model the co-dependence between εi and ηi as
εi = ληi + vi ;
substituting the above expression in (38.14), you obtain the model that is actually estimated:
k
X
yi = xij βj + λη̂i + vi ,
j=1
Listing 38.5: Interval model on artificial data [Download ▼]

Input:
nulldata 100
# generate artificial data
set seed 201449
x = normal()
epsilon = 0.2*normal()
ystar = 1 + x + epsilon
lo_bound = floor(ystar)
hi_bound = ceil(ystar)
# run the interval model

intreg lo_bound hi_bound const x
# estimate ystar
gen_resid = $uhat
yhat = $yhat + gen_resid
corr ystar yhat

Model 1: Interval estimates using the 100 observations 1-100
Lower limit: lo_bound, Upper limit: hi_bound

---------------------------------------------------------
const 0.993762 0.0338325 29.37 1.22e-189 ***
x 0.986662 0.0319959 30.84 8.34e-209 ***
Chi-square(1) 950.9270 p-value 8.3e-209

sigma = 0.223273
Left-unbounded observations: 0
Right-unbounded observations: 0
Bounded observations: 100
Point observations: 0
...
corr(ystar, yhat) = 0.98960092

Under the null hypothesis of no correlation:
t(98) = 68.1071, with two-tailed p-value 0.0000
so the hypothesis that censoring does not matter is equivalent to the hypothesis H0 : λ = 0, which
can be easily tested.
The parameters can be estimated via maximum likelihood under the assumption of joint normality
of εi and ηi ; however, a widely used alternative method yields the so-called Heckit estimator, named
after Heckman (1979). The procedure can be briefly outlined as follows: first, a probit model is fit
on equation (38.15); next, the generalized residuals are inserted in equation (38.14) to correct for
the effect of sample selection.
Gretl provides the heckit command to carry out estimation; its syntax is
heckit y X ; d Z
where y is the dependent variable, X is a list of regressors, d is a dummy variable holding 1 for
uncensored observations and Z is a list of explanatory variables for the censoring equation.
Since in most cases maximum likelihood is the method of choice, by default gretl computes ML
estimates. The 2-step Heckit estimates can be obtained by using the --two-step option. After
estimation, the $uhat accessor contains the generalized residuals. As in the ordinary Tobit model,
the residuals equal the difference between actual and fitted yi only for uncensored observations
(those for which di = 1).
Listing 38.6: Heckit model [Download ▼]
open mroz87.gdt
series EXP2 = AX^2

series WA2 = WA^2
series KIDS = (KL6+K618)>0
# Greene’s specification
list X = const AX EXP2 WE CIT

list Z = const WA WA2 FAMINC KIDS WE
heckit WW X ; LFP Z --two-step

heckit WW X ; LFP Z
# Wooldridge’s specification
series NWINC = FAMINC - WW*WHRS

series lww = log(WW)
list X = const WE AX EXP2
list Z = X NWINC WA KL6 K618
heckit lww X ; LFP Z --two-step
Listing 38.6 shows two estimates from the dataset used in Mroz (1987): the first one replicates
Table 22.7 in Greene (2003),4 while the second one replicates table 17.1 in Wooldridge (2002a).
38.9 Count data

Here the dependent variable is assumed to be a non-negative integer — for example, the number of
Nobel Prize winners in a given country per year, the number of vehicles crossing a certain intersec-
tion per hour, the number of bank failures per year. A probabilistic description of such a variable
must hinge on some discrete distribution and the one most commonly employed is the Poisson,
according to which, for a random variable Y and a specific realization y,
e−λ λy
P (Y = y) = , y = 0, 1, 2 . . .
y!
where the single parameter λ is both the mean and the variance of Y . In an econometric context
we generally want to treat λ as specific to the observation, i, and driven by covariates Xi via a
4 Note that the estimates given by gretl do not coincide with those found in the printed volume. They do, however,
match those found on the errata web page for Greene’s book: http://pages.stern.nyu.edu/~wgreene/Text/Errata/
ERRATA5.htm.
parameter vector β. The standard way of allowing for this is the exponential mean function,
λi ≡ exp(Xi β)
hence leading to
exp(− exp(Xi β))(exp(Xi β))y
P (Yi = y) =
y!
Given this model the log-likelihood for n observations can be written as
n
X
ℓ= (− exp(Xi β) + yi Xi β − log yi !
i=1
Maximization of this quantity is quite straightforward, and is carried out in gretl using the syntax
poisson depvar indep
In some cases, an “offset” variable is needed: the count of occurrences of the outcome of interest
in a given time is assumed to be strictly proportional to the offset variable ti . In the epidemiology
literature, the offset is known as “population at risk”. In this case λ is modeled as
λi = ti exp(Xi β)
The log-likelihood is not greatly complicated thereby. Here’s another way of thinking about the
offset variable: its natural log is just another explanatory variable whose coefficient is constrained
to equal 1.
If an offset variable is needed, it should be specified at the end of the command, separated from
the list of explanatory variables by a semicolon, as in
poisson depvar indep ; offset
Overdispersion
As mentioned above, in the Poisson model E(Yi |Xi ) = V (Yi |Xi ) = λi , that is, the conditional mean
equals the conditional variance by construction. In many cases this feature is at odds with the data;
the conditional variance is often larger than the mean, a phenomenon known as overdispersion.
The output from the poisson command includes a conditional moment test for overdispersion (as
per Davidson and MacKinnon (2004), section 11.5), which is printed automatically after estimation.
Overdispersion can be attributed to unmodeled heterogeneity between individuals. Two data points
with the same observable characteristics Xi = Xj may differ because of some unobserved scale
factor si ̸= sj so that
E(Yi |Xi , si ) = λi si ̸= λj sj = E(Yi |Xj , sj )
even though λi = λj . In other words, Yi is a Poisson random variable conditional on both Xi and
si , but since si is unobservable, the only thing we can we can use, P (Yi |Xi ), will not conform to the
Poisson distribution.
It is often assumed that si can be represented as a gamma random variable with mean 1 and
variance α. The parameter α, which measures the degree of heterogeneity between individuals, is
then estimated jointly with the vector β.
In this case, the conditional probability that Yi = y given Xi can be shown to be
y " #α−1
Γ (y + α−1 ) λi α−1

P (Yi = y|Xi ) = (38.17)
Γ (α−1 )Γ (y + 1) λi + α−1 λi + α−1
which is known as the Negative Binomial Model. The conditional mean is still E(Yi |Xi ) = λi , but the
variance is V (Yi |Xi ) = λi (1 + λi α).
To estimate the Negative Binomial model in gretl, just substitute the keyword negbin for poisson
in the commands shown above.
To be precise, the model 38.17 is that labeled NEGBIN2 by Cameron and Trivedi (1986). There’s
also a lesser-used NEGBIN1 variant, in which the conditional variance is a scalar multiple of the
conditional mean; that is, V (Yi |Xi ) = λi (1 + γ). This can be invoked in gretl by appending the
option --model1 to the negbin command.5
The two accessors $yhat and $uhat return the predicted values and generalized residuals, respec-
tively. Note that $uhat is not equal to the difference between the dependent variable and $yhat.
Examples
Among the sample scripts supplied with gretl you can find camtriv.inp. This exemplifies the
count-data estimators described above, based on a dataset analysed by Cameron and Trivedi (1998).
The gretl package also contains a relevant dataset used by McCullagh and Nelder (1983), namely
mccullagh.gdt, on which the Poisson and Negative Binomial estimators may be tried.
38.10 Duration models

In some contexts we wish to apply econometric methods to measurements of the duration of certain
states. Classic examples include the following:
• From engineering, the “time to failure” of electronic or mechanical components: how long do,
say, computer hard drives last until they malfunction?
• From the medical realm: how does a new treatment affect the time from diagnosis of a certain
condition to exit from that condition (where “exit” might mean death or full recovery)?
• From economics: the duration of strikes, or of spells of unemployment.
In each case we may be interested in how the durations are distributed, and how they are affected
by relevant covariates. There are several approaches to this problem; the one we discuss here —
which is currently the only one supported by gretl — is estimation of a parametric model by means
of Maximum Likelihood. In this approach we hypothesize that the durations follow some definite
probability law and we seek to estimate the parameters of that law, factoring in the influence of
covariates.
We may express the density of the durations as f (t, X, θ), where t is the length of time in the state
in question, X is a matrix of covariates, and θ is a vector of parameters. The likelihood for a sample
of n observations indexed by i is then
n
Y
L= f (ti , xi , θ)
i=1
Rather than working with the density directly, however, it is standard practice to factor f (·) into
two components, namely a hazard function, λ, and a survivor function, S. The survivor function
gives the probability that a state lasts at least as long as t; it is therefore 1 − F (t, X, θ) where F
is the CDF corresponding to the density f (·). The hazard function addresses this question: given
that a state has persisted as long as t, what is the likelihood that it ends within a short increment
of time beyond t —that is, it ends between t and t + ∆? Taking the limit as ∆ goes to zero, we end
up with the ratio of the density to the survivor function:6
f (t, X, θ)
λ(t, X, θ) = (38.18)
S(t, X, θ)
5 The “1” and “2” in these labels indicate the power to which λi is raised in the conditional variance expression.
6 For a fuller discussion see, for example, Davidson and MacKinnon (2004).
so the log-likelihood can be written as

n
X n
X
ℓ= log f (ti , xi , θ) = log λ(ti , xi , θ) + log S(ti , xi , θ) (38.19)
i=1 i=1
One point of interest is the shape of the hazard function, in particular its dependence (or not) on
time since the state began. If λ does not depend on t we say the process in question exhibits du-
ration independence: the probability of exiting the state at any given moment neither increases nor
decreases based simply on how long the state has persisted to date. The alternatives are positive
duration dependence (the likelihood of exiting the state rises, the longer the state has persisted)
or negative duration dependence (exit becomes less likely, the longer it has persisted). Finally, the
behavior of the hazard with respect to time need not be monotonic; some parameterizations allow
for this possibility and some do not.
Since durations are inherently positive the probability distribution used in modeling must respect
this requirement, giving a density of zero for t ≤ 0. Four common candidates are the exponential,
Weibull, log-logistic and log-normal, the Weibull being the most common choice. The table below
displays the density and the hazard function for each of these distributions as they are commonly
parameterized, written as functions of t alone. (φ and Φ denote, respectively, the Gaussian PDF
and CDF.)
density, f (t) hazard, λ(t)
Exponential γ exp (−γt) γ

α α−1 α
Weibull αγ t exp [−(γt) ] αγ α t α−1
(γt)α−1 (γt)α−1
Log-logistic γα γα
[1 + (γt)α ]2 [1 + (γt)α ]

1 1 φ (log t − µ)/σ
Log-normal φ (log t − µ)/σ
σt σ t Φ −(log t − µ)/σ
The hazard is constant for the exponential distribution. For the Weibull, it is monotone increasing
in t if α > 1, or monotone decreasing for α < 1. (If α = 1 the Weibull collapses to the exponential.)
The log-logistic and log-normal distributions allow the hazard to vary with t in a non-monotonic
fashion.
Covariates are brought into the picture by allowing them to govern one of the parameters of the
density, so that durations are not identically distributed across cases. For example, when using
the log-normal distribution it is natural to make µ, the expected value of log t, depend on the
covariates, X. This is typically done via a linear index function: µ = Xβ.
Note that the expressions for the log-normal density and hazard contain the term (log t − µ)/σ .
Replacing µ with Xβ this becomes (log t − Xβ)/σ . As in Kalbfleisch and Prentice (2002), we define
a shorthand label for this term:
wi ≡ (log ti − xi β)/σ (38.20)
It turns out that this constitutes a useful simplifying change of variables for all of the distributions
discussed here. The interpretation of the scale factor, σ , in the expression above depends on the
distribution. For the log-normal, σ represents the standard deviation of log t; for the Weibull and
the log-logistic it corresponds to 1/α; and for the exponential it is fixed at unity. For distributions
other than the log-normal, Xβ corresponds to − log γ, or in other words γ = exp(−Xβ).
With this change of variables, the density and survivor functions may be written compactly as
follows (the exponential is the same as the Weibull).
density, f (wi ) survivor, S(wi )

Weibull exp (wi − ewi ) exp(−ewi )
Log-logistic ewi (1 + ewi )−2 (1 + ewi )−1
Log-normal φ(wi ) Φ(−wi )
In light of the above we may think of the generic parameter vector θ, as in f (t, X, θ), as composed of
the coefficients on the covariates, β, plus (in all cases but the exponential) the additional parameter
σ.
A complication in estimation of θ is posed by “incomplete spells”. That is, in some cases the state
in question may not have ended at the time the observation is made (e.g. some workers remain
unemployed, some components have not yet failed). If we use ti to denote the time from entering
the state to either (a) exiting the state or (b) the observation window closing, whichever comes first,
then all we know of the “right-censored” cases (b) is that the duration was at least as long as ti .
This can be handled by rewriting the the log-likelihood (compare 38.19) as
n
X
ℓi = δi log S (wi ) + (1 − δi ) − log σ + log f (wi ) (38.21)
i=1
where δi equals 1 for censored cases (incomplete spells), and 0 for complete observations. The
rationale for this is that the log-density equals the sum of the log hazard and the log survivor
function, but for the incomplete spells only the survivor function contributes to the likelihood. So
in (38.21) we are adding up the log survivor function alone for the incomplete cases, plus the full
log density for the completed cases.
Implementation in gretl and illustration

The duration command accepts a list of series on the usual pattern: dependent variable followed
by covariates. If right-censoring is present in the data this should be represented by a dummy
variable corresponding to δi above, separated from the covariates by a semicolon. For example,
duration durat 0 X ; cens
where durat measures durations, 0 represents the constant (which is required for such models), X
is a named list of regressors, and cens is the censoring dummy.
By default the Weibull distribution is used; you can substitute any of the other three distribu-
tions discussed here by appending one of the option flags --exponential, --loglogistic or
--lognormal.
Interpreting the coefficients in a duration model requires some care, and we will work through
an illustrative case. The example comes from section 20.3 of Wooldridge (2002a) and it concerns
criminal recidivism.7 The data (filename recid.gdt) pertain to a sample of 1,445 convicts released
from prison between July 1, 1977 and June 30, 1978. The dependent variable is the time in months
until they are again arrested. The information was gathered retrospectively by examining records
in April 1984; the maximum possible length of observation is 81 months. Right-censoring is impor-
tant: when the date were compiled about 62 percent had not been rearrested. The dataset contains
several covariates, which are described in the data file; we will focus below on interpretation of the
married variable, a dummy which equals 1 if the respondent was married when imprisoned.
Listing 38.7 shows the gretl commands for Weibull and log-normal models along with most of the
output. Consider first the Weibull scale factor, σ . The estimate is 1.241 with a standard error of
0.048. (We don’t print a z score and p-value for this term since H0 : σ = 0 is not of interest.)
7 Germán Rodríguez of Princeton University has a page discussing this example and displaying estimates from Stata
at http://data.princeton.edu/pop509/recid1.html.
Recall that σ corresponds to 1/α; we can be confident that α is less than 1, so recidivism displays
negative duration dependence. This makes sense: it is plausible that if a past offender manages
to stay out of trouble for an extended period his risk of engaging in crime again diminishes. (The
exponential model would therefore not be appropriate in this case.)
Listing 38.7: Models for recidivism data [Download ▼]

Input:
open recid.gdt
list X = workprg priors tserved felon alcohol drugs \
black married educ age
duration durat 0 X ; cens
duration durat 0 X ; cens --lognormal
Partial output:
Model 1: Duration (Weibull), using observations 1-1445
Dependent variable: durat

--------------------------------------------------------
const 4.22167 0.341311 12.37 3.85e-35 ***
workprg -0.112785 0.112535 -1.002 0.3162
priors -0.110176 0.0170675 -6.455 1.08e-10 ***
tserved -0.0168297 0.00213029 -7.900 2.78e-15 ***
felon 0.371623 0.131995 2.815 0.0049 ***
alcohol -0.555132 0.132243 -4.198 2.69e-05 ***
drugs -0.349265 0.121880 -2.866 0.0042 ***
black -0.563016 0.110817 -5.081 3.76e-07 ***
married 0.188104 0.135752 1.386 0.1659
educ 0.0289111 0.0241153 1.199 0.2306
age 0.00462188 0.000664820 6.952 3.60e-12 ***
sigma 1.24090 0.0482896

Model 2: Duration (log-normal), using observations 1-1445

Dependent variable: durat

---------------------------------------------------------
const 4.09939 0.347535 11.80 4.11e-32 ***
workprg -0.0625693 0.120037 -0.5213 0.6022
priors -0.137253 0.0214587 -6.396 1.59e-10 ***
tserved -0.0193306 0.00297792 -6.491 8.51e-11 ***
felon 0.443995 0.145087 3.060 0.0022 ***
alcohol -0.634909 0.144217 -4.402 1.07e-05 ***
drugs -0.298159 0.132736 -2.246 0.0247 **
black -0.542719 0.117443 -4.621 3.82e-06 ***
married 0.340682 0.139843 2.436 0.0148 **
educ 0.0229194 0.0253974 0.9024 0.3668
age 0.00391028 0.000606205 6.450 1.12e-10 ***
sigma 1.81047 0.0623022

On a priori grounds, however, we may doubt the monotonic decline in hazard that is implied by
the Weibull specification. Even if a person is liable to return to crime, it seems relatively unlikely
that he would do so straight out of prison. In the data, we find that only 2.6 percent of those
followed were rearrested within 3 months. The log-normal specification, which allows the hazard
to rise and then fall, may be more appropriate. Using the duration command again with the same
covariates but the --lognormal flag, we get a log-likelihood of −1597 as against −1633 for the
Weibull, confirming that the log-normal gives a better fit.
Let us now focus on the married coefficient, which is positive in both specifications but larger and
more sharply estimated in the log-normal variant. The first thing is to get the interpretation of the
sign right. Recall that Xβ enters negatively into the intermediate variable w (equation 38.20). The
Weibull hazard is λ(wi ) = ewi , so being married reduces the hazard of re-offending, or in other
words lengthens the expected duration out of prison. The same qualitative interpretation applies
for the log-normal.
To get a better sense of the married effect, it is useful to show its impact on the hazard across time.
We can do this by plotting the hazard for two values of the index function Xβ: in each case the
values of all the covariates other than married are set to their means (or some chosen values) while
married is set first to 0 then to 1. Listing 38.8 provides a script that does this, and the resulting
plots are shown in Figure 38.1. Note that when computing the hazards we need to multiply by the
Jacobian of the transformation from ti to wi = log(ti − xi β)/σ , namely 1/t. Note also that the
estimate of σ is available via the accessor $sigma, but it is also present as the last element in the
coefficient vector obtained via $coeff.
A further difference between the Weibull and log-normal specifications is illustrated in the plots.
The Weibull is an instance of a proportional hazard model. This means that for any sets of values of
the covariates, xi and xj , the ratio of the associated hazards is invariant with respect to duration. In
this example the Weibull hazard for unmarried individuals is always 1.1637 times that for married.
In the log-normal variant, on the other hand, this ratio gradually declines from 1.6703 at one month
to 1.1766 at 100 months.
Alternative representations of the Weibull model

One point to watch out for with the Weibull duration model is that the estimates may be represented
in different ways. The representation given by gretl is sometimes called the accelerated failure-time
(AFT) metric. An alternative that one sometimes sees is the log relative-hazard metric; in fact this is
the metric used in Wooldridge’s presentation of the recidivism example. To get from AFT estimates
to log relative-hazard form it is necessary to multiply the coefficients by −σ −1 . For example, the
married coefficient in the Weibull specification as shown here is 0.188104 and σ̂ is 1.24090, so the
alternative value is −0.152, which is what Wooldridge shows (2002a, Table 20.1).
Fitted values and residuals

By default, gretl computes fitted values (accessible via $yhat) as the conditional mean of duration.
The formulae are shown below (where Γ denotes the gamma function, and the exponential variant
is just Weibull with σ = 1).
Weibull Log-logistic Log-normal

πσ
exp(Xβ)Γ (1 + σ ) exp(Xβ) exp(Xβ + σ 2 /2)
sin(π σ )
The expression given for the log-logistic mean, however, is valid only for σ < 1; otherwise the
expectation is undefined, a point that is not noted in all software.8
8 The predict adjunct to the streg command in Stata 10, for example, gaily produces large negative values for the
log-logistic mean in duration models with σ > 1.

Listing 38.8: Create plots showing conditional hazards [Download ▼]
open recid.gdt -q
# leave ’married’ separate for analysis

list X = workprg priors tserved felon alcohol drugs \
black educ age
# Weibull variant
duration durat 0 X married ; cens
# coefficients on all Xs apart from married
matrix beta_w = $coeff[1:$ncoeff-2]
# married coefficient
scalar mc_w = $coeff[$ncoeff-1]
scalar s_w = $sigma
# Log-normal variant
duration durat 0 X married ; cens --lognormal
matrix beta_n = $coeff[1:$ncoeff-2]
scalar mc_n = $coeff[$ncoeff-1]
scalar s_n = $sigma
list allX = 0 X
# evaluate X\beta at means of all variables except marriage
scalar Xb_w = meanc({allX}) * beta_w
scalar Xb_n = meanc({allX}) * beta_n
# construct two plot matrices

matrix mat_w = zeros(100, 3)
matrix mat_n = zeros(100, 3)
loop t=1..100
# first column, duration
mat_w[t, 1] = t
mat_n[t, 1] = t
wi_w = (log(t) - Xb_w)/s_w
wi_n = (log(t) - Xb_n)/s_n
# second col: hazard with married = 0
mat_w[t, 2] = (1/t) * exp(wi_w)
mat_n[t, 2] = (1/t) * pdf(z, wi_n) / cdf(z, -wi_n)
wi_w = (log(t) - (Xb_w + mc_w))/s_w
wi_n = (log(t) - (Xb_n + mc_n))/s_n
# third col: hazard with married = 1
mat_w[t, 3] = (1/t) * exp(wi_w)
mat_n[t, 3] = (1/t) * pdf(z, wi_n) / cdf(z, -wi_n)
endloop
cnameset(mat_w, "months unmarried married")

cnameset(mat_n, "months unmarried married")
gnuplot 2 3 1 --with-lines --supp --matrix=mat_w --output=weibull.plt

gnuplot 2 3 1 --with-lines --supp --matrix=mat_n --output=lognorm.plt
Weibull
0.020
unmarried
0.018 married
0.016
0.014
0.012
0.010
0.008
0.006
0 20 40 60 80 100
months
Log-normal
0.020
unmarried
0.018 married
0.016
0.014
0.012
0.010
0.008
0.006
0 20 40 60 80 100
months
Figure 38.1: Recidivism hazard estimates for married and unmarried ex-convicts
Alternatively, if the --medians option is given, gretl’s duration command will produce conditional
medians as the content of $yhat. For the Weibull the median is exp(Xβ)(log 2)σ ; for the log-logistic
and log-normal it is just exp(Xβ).
The values we give for the accessor $uhat are generalized (Cox–Snell) residuals, computed as the
integrated hazard function, which equals the negative log of the survivor function:
ϵi = Λ(ti , xi , θ) = − log S(ti , xi , θ)
Under the null of correct specification of the model these generalized residuals should follow the
unit exponential distribution, which has mean and variance both equal to 1 and density exp(−ϵ).
See chapter 18 of Cameron and Trivedi (2005) for further discussion.
Chapter 39
Quantile regression
39.1 Introduction
In Ordinary Least Squares (OLS) regression, the fitted values, ŷi = Xi β̂, represent the conditional
mean of the dependent variable—conditional, that is, on the regression function and the values
of the independent variables. In median regression, by contrast and as the name implies, fitted
values represent the conditional median of the dependent variable. It turns out that the principle of
estimation for median regression is easily stated (though not so easily computed), namely, choose
β̂ so as to minimize the sum of absolute residuals. Hence the method is known as Least Absolute
Deviations or LAD. While the OLS problem has a straightforward analytical solution, LAD is a linear
programming problem.
Quantile regression is a generalization of median regression: the regression function predicts the
conditional τ-quantile of the dependent variable — for example the first quartile (τ = .25) or the
ninth decile (τ = .90).
If the classical conditions for the validity of OLS are satisfied — that is, if the error term is indepen-
dently and identically distributed, conditional on X — then quantile regression is redundant: all the
conditional quantiles of the dependent variable will march in lockstep with the conditional mean.
Conversely, if quantile regression reveals that the conditional quantiles behave in a manner quite
distinct from the conditional mean, this suggests that OLS estimation is problematic.
Gretl has offered quantile regression functionality since version 1.7.5 (in addition to basic LAD
regression, which has been available since early in gretl’s history via the lad command).1
39.2 Basic syntax

The basic invocation of quantile regression is
quantreg tau reglist
where
• reglist is a standard gretl regression list (dependent variable followed by regressors, including
the constant if an intercept is wanted); and
• tau is the desired conditional quantile, in the range 0.01 to 0.99, given either as a numerical
value or the name of a pre-defined scalar variable (but see below for a further option).
Estimation is via the Frisch–Newton interior point solver (Portnoy and Koenker, 1997), which is sub-
stantially faster than the “traditional” Barrodale–Roberts (1974) simplex approach for large prob-
lems.
1 We gratefully acknowledge our borrowing from the quantreg package for GNU R (version 4.17). The core of the
package is composed of Fortran code written by Roger Koenker; this is accompanied by various driver and auxiliary
functions written in the R language by Koenker and Martin Mächler. The latter functions have been re-worked in C for
gretl. We have added some guards against potential numerical problems in small samples.
393
Chapter 39. Quantile regression 394
By default, standard errors are computed according to the asymptotic formula given by Koenker
and Bassett (1978). Alternatively, if the --robust option is given, we use the sandwich estimator
developed in Koenker and Zhao (1994).2
39.3 Confidence intervals

An option --intervals is available. When this is given we print confidence intervals for the param-
eter estimates instead of standard errors. These intervals are computed using the rank inversion
method and in general they are asymmetrical about the point estimates — that is, they are not sim-
ply “plus or minus so many standard errors”. The specifics of the calculation are inflected by
the --robust option: without this, the intervals are computed on the assumption of IID errors
(Koenker, 1994); with it, they use the heteroskedasticity-robust estimator developed by Koenker
and Machado (1999).
By default, 90 percent intervals are produced. You can change this by appending a confidence value
(expressed as a decimal fraction) to the intervals option, as in
quantreg tau reglist --intervals=.95
When the confidence intervals option is selected, the parameter estimates are calculated using
the Barrodale–Roberts method. This is simply because the Frisch–Newton code does not currently
support the calculation of confidence intervals.
Two further details. First, the mechanisms for generating confidence intervals for quantile esti-
mates require that the model has at least two regressors (including the constant). If the --intervals
option is given for a model containing only one regressor, an error is flagged. Second, when a model
is estimated in this mode, you can retrieve the confidence intervals using the accessor $coeff_ci.
This produces a k × 2 matrix, where k is the number of regressors. The lower bounds are in the
first column, the upper bounds in the second. See also section 39.5 below.
39.4 Multiple quantiles

As a further option, you can give tau as a matrix — either the name of a predefined matrix or in
numerical form, as in {.05, .25, .5, .75, .95}. The given model is estimated for all the τ
values and the results are printed in a special form, as shown below (in this case the --intervals
option was also given).
Model 1: Quantile estimates using the 235 observations 1-235

Dependent variable: foodexp
With 90 percent confidence intervals
VARIABLE TAU COEFFICIENT LOWER UPPER
const 0.05 124.880 98.3021 130.517

0.25 95.4835 73.7861 120.098
0.50 81.4822 53.2592 114.012
0.75 62.3966 32.7449 107.314
0.95 64.1040 46.2649 83.5790
income 0.05 0.343361 0.343327 0.389750

0.25 0.474103 0.420330 0.494329
0.50 0.560181 0.487022 0.601989
0.75 0.644014 0.580155 0.690413
0.95 0.709069 0.673900 0.734441
2 These correspond to the iid and nid options in R’s quantreg package, respectively.
Coefficient on income
0.75
Quantile estimates with 90% band
OLS estimate with 90% band
0.7
0.65
0.6
0.55
0.5
0.45
0.4
0.35
0.3
0 0.2 0.4 0.6 0.8 1
tau
Figure 39.1: Regression of food expenditure on income; Engel’s data
The gretl GUI has an entry for Quantile Regression (under /Model/Robust estimation), and you can
select multiple quantiles there too. In that context, just give space-separated numerical values (as
per the predefined options, shown in a drop-down list).
When you estimate a model in this way most of the standard menu items in the model window
are disabled, but one extra item is available — graphs showing the τ sequence for a given coeffi-
cient in comparison with the OLS coefficient. An example is shown in Figure 39.1. This sort of
graph provides a simple means of judging whether quantile regression is redundant (OLS is fine) or
informative.
In the example shown—based on data on household income and food expenditure gathered by
Ernst Engel (1821–1896)—it seems clear that simple OLS regression is potentially misleading. The
“crossing” of the OLS estimate by the quantile estimates is very marked.
However, it is not always clear what implications should be drawn from this sort of conflict. With
the Engel data there are two issues to consider. First, Engel’s famous “law” claims an income-
elasticity of food consumption that is less than one, and talk of elasticities suggests a logarithmic
formulation of the model. Second, there are two apparently anomalous observations in the data
set: household 105 has the third-highest income but unexpectedly low expenditure on food (as
judged from a simple scatter plot), while household 138 (which also has unexpectedly low food
consumption) has much the highest income, almost twice that of the next highest.
With n = 235 it seems reasonable to consider dropping these observations. If we do so, and adopt
a log–log formulation, we get the plot shown in Figure 39.2. The quantile estimates still cross the
OLS estimate, but the “evidence against OLS” is much less compelling: the 90 percent confidence
bands of the respective estimates overlap at all the quantiles considered.
A script to produce the results discussed above is presented in listing 39.1.
39.5 Large datasets

As noted above, when you give the --intervals option with the quantreg command, which calls
for estimation of confidence intervals via rank inversion, gretl switches from the default Frisch–
Coefficient on log(income)
0.96
0.94
0.92
0.9
0.88
0.86
0.84
0.82
0.8
0.78
Quantile estimates with 90% band
OLS estimate with 90% band
0.76
0 0.2 0.4 0.6 0.8 1
tau
Figure 39.2: Log–log regression; 2 observations dropped from full Engel data set.
Listing 39.1: Food expenditure and income, Engel data [Download ▼]
# this data file is supplied with gretl

open engel.gdt
# specify some quantiles

matrix tau = {.05, .25, .5, .75, .95}
# use levels of variables

QM1 <- quantreg tau foodexp 0 income --intervals
# use log-log specification, with two outliers removed

logs foodexp income
smpl obs!=105 && obs!=138 --restrict
QM2 <- quantreg tau l_foodexp 0 l_income --intervals
The script saves the two models “as icons”. Double-clicking on a model’s icon opens a window to
display the results, and the Graph menu in this window gives access to a tau-sequence plot.
Newton algorithm to the Barrodale–Roberts simplex method.

This is OK for moderately large datasets (up to, say, a few thousand observations) but on very large
problems the simplex algorithm may become seriously bogged down. For example, Koenker and
Hallock (2001) present an analysis of the determinants of birth weights, using 198377 observations
and with 15 regressors. Generating confidence intervals via Barrodale–Roberts for a single value of
τ took about half an hour on a Lenovo Thinkpad T60p with 1.83GHz Intel Core 2 processor.
If you want confidence intervals in such cases, you are advised not to use the --intervals option,
but to compute them using the method of “plus or minus so many standard errors”. (One Frisch–
Newton run took about 8 seconds on the same machine, showing the superiority of the interior
point method.) The script below illustrates:
quantreg .10 y 0 xlist

scalar crit = qnorm(.95)
matrix ci = $coeff - crit * $stderr
ci = ci~($coeff + crit * $stderr)
print ci
The matrix ci will contain the lower and upper bounds of the (symmetrical) 90 percent confidence
intervals.
To avoid a situation where gretl becomes unresponsive for a very long time we have set the maxi-
mum number of iterations for the Borrodale–Roberts algorithm to the (somewhat arbitrary) value
of 1000. We will experiment further with this, but for the meantime if you really want to use this
method on a large dataset, and don’t mind waiting for the results, you can increase the limit using
the set command with parameter rq_maxiter, as in
set rq_maxiter 5000

Chapter 40
Nonparametric methods
The main focus of gretl is on parametric estimation, but we offer a selection of nonparametric
methods. The most basic of these
• various tests for difference in distribution (Sign test, Wilcoxon rank-sum test, Wilcoxon signed-
rank test);
• the Runs test for randomness; and
• nonparametric measures of association: Spearman’s rho and Kendall’s tau.
Details on the above can be found by consulting the help for the commands difftest, runs, corr
and spearman. In the GUI program these items are found under the Tools menu and the Robust
estimation item under the Model menu.
In this chapter we concentrate on two relatively complex methods for nonparametric curve-fitting
and prediction, namely William Cleveland’s “loess” (also known as “lowess”) and the Nadaraya–
Watson estimator.
40.1 Locally weighted regression (loess)

Loess (Cleveland, 1979) is a nonparametric smoother employing locally weighted polynomial re-
gression. It is intended to yield an approximation to g(·) when the dependent variable, y, can be
expressed as
yi = g(xi ) + ϵi
for some smooth function g(·).
Given a sample of n observations on the variables y and x, the procedure is to run a weighted least
squares regression (a polynomial of order d = 0, 1 or 2 in x) localized to each data point, i. In each
such regression the sample consists of the r nearest neighbors (in the x dimension) to the point i,
with weights that are inversely related to the distance |xi − xk |, k = 1, . . . , r . The predicted value
ŷi is then obtained by evaluating the estimated polynomial at xi . The most commonly used order
is d = 1.
A bandwidth parameter 0 < q ≤ 1 controls the proportion of the total number of data points used
in each regression; thus r = qn (rounded up to an integer). Larger values of q lead to a smoother
fitted series, smaller values to a series that tracks the actual data more closely; 0.25 ≤ q ≤ 0.5 is
often a suitable range.
In gretl’s implementation of loess the weighting scheme is that given by Cleveland, namely,
wk (xi ) = W (h−1
i (xk − xi ))
where hi is the distance between xi and its r th nearest neighbor, and W (·) is the tricube function,
(1 − |x|3 )3
(
for |x| < 1
W (x) =
0 for |x| ≥ 1
398
Chapter 40. Nonparametric methods 399
The local regression can be made robust via an adjustment based on the residuals, ei = yi − ŷi .
Robustness weights, δk , are defined by
δk = B(ek /6s)
where s is the median of the |ei | and B(·) is the bisquare function,
(1 − x 2 )2
(
for |x| < 1
B(x) =
0 for |x| ≥ 1
The polynomial regression is then re-run using weight δk wk (xi ) at (xk , yk ).

The loess() function in gretl takes up to five arguments as follows: the y series, the x series, the
order d, the bandwidth q, and a Boolean switch to turn on the robust adjustment. The last three
arguments are optional: if they are omitted the default values are d = 1, q = 0.5 and no robust
adjustment. An example of a full call to loess() is shown below; in this case a quadratic in x is
specified, three quarters of the data points will be used in each local regression, and robustness is
turned on:
series yh = loess(y, x, 2, 0.75, 1)
An illustration of loess is provided in Listing 40.1: we generate a series that has a deterministic
sine wave component overlaid with noise uniformly distributed on (−1, 1). Loess is then used to
retrieve a good approximation to the sine function. The resulting graph is shown in Figure 40.1.
Listing 40.1: Loess script [Download ▼]
nulldata 120
series x = index
scalar n = $nobs
series y = sin(2*pi*x/n) + uniform(-1, 1)
series yh = loess(y, x, 2, 0.75, 0)
gnuplot y yh x --output=display --with-lines=yh
2
loess fit
1.5
0.5
-0.5
-1
-1.5
-2
0 20 40 60 80 100 120
x
Figure 40.1: Loess: retrieving a sine wave

40.2 The Nadaraya–Watson estimator

The Nadaraya–Watson nonparametric estimator (Nadaraya, 1964; Watson, 1964) is an estimator
for the conditional mean of a variable Y , available in a sample of size n, for a given value of a
conditioning variable X, and is defined as
Pn
j=1 yj · Kh (X − xj )
m(X) = Pn
j=1 Kh (X − xj )
where Kh (·) is the so-called kernel function, which is usually some simple transform of a density
function that depends on a scalar, h, known as the bandwidth. The one used by gretl is
!
x2
Kh (x) = exp −
2h
for |x| < τ and zero otherwise. Larger values of h produce a smoother function. The scalar τ,
known as the trim parameter, is used to prevent numerical problems when the kernel function is
evaluated too far away from zero.
A common variant of Nadaraya–Watson is the so-called “leave-one-out” estimator, which omits the
i-th observation when evaluating m(xi ). The formula therefore becomes
P
j̸=i yj · Kh (xi − xj )
m(xi ) = P
j̸=i Kh (xi − xj )
This makes the estimator more robust numerically and its usage is often advised for inference
purposes.
The nadarwat() function in gretl takes up to five arguments as follows: the dependent series y,
the independent series x, the bandwidth h, a Boolean switch to turn on “leave-one-out”, and a value
for the trim parameter τ, expressed as a multiple of h. The last three arguments are optional; if
they are omitted the default values are, respectively, an automatic data-determined value for h (see
below), leave-one-out not activated, and τ = 4. The default value of τ offers a relatively safe guard
against numerical problems; in some cases a larger τ may produce more sensible values in regions
of X with sparse support.
Choice of bandwidth
As mentioned above, larger values of h lead to a smoother m(·) function; smaller values make
the m(·) function follow the yi values more closely, so that the function appears more “jagged”.
In fact, as h → ∞, m(xi ) → Ȳ ; on the contrary, if h → 0, observations for which xi ̸= X are not
taken into account at all when computing m(X). Also, the statistical properties of m(·) vary with
h: its variance can be shown to be decreasing in h, while its squared bias is increasing in h. It
can be shown that choosing h ∼ n−1/5 minimizes the RMSE, so that value is customarily taken as a
reference point.
If the argument h is omitted or set to 0, gretl uses the following data-determined value:
r

h = 0.9 · min s, · n−1/5
1.349
where s is the sample standard deviation of x and r is its interquartile range.
Example and prediction

By way of example, Listing 40.2 produces the graph shown in Figure 40.2 (after some slight editing).
Although X could be, in principle, any value, in the typical usage of this estimator you want to
compute m(X) for X equal to one or more values actually observed in your sample, that is m(xi ).
Listing 40.2: Nadaraya–Watson example [Download ▼]
# Nonparametric regression example: husband’s age on wife’s age

open mroz87.gdt
# initial value for the bandwidth

scalar h = $nobs^(-0.2)
# three increasingly smooth estimates
series m0 = nadarwat(HA, WA, h)
series m1 = nadarwat(HA, WA, h * 5)
series m2 = nadarwat(HA, WA, h * 10)
# produce the graph

dataset sortby WA
gnuplot HA m0 m1 m2 WA --output=display --with-lines=m0,m1,m2
60
m0
m1
m2
55
50
HA
45
40
35
30
30 35 40 45 50 55 60
WA
Figure 40.2: Nadaraya–Watson example for several choices of the bandwidth parameter
If you need a point estimate of m(X) for some value of X which is not present among the valid
observations of your dependent variable, you may want to add some “fake” observations to your
dataset in which y is missing and x contains the values you want m(x) evaluated at. For example,
the following script evaluates m(x) at regular intervals between −2.0 and 2.0:
nulldata 120
set seed 120496
# first part of the sample: actual data

smpl 1 100
x = normal()
y = x^2 + sin(x) + normal()
# second part of the sample: fake x data

smpl 101 120
x = (obs-110) / 5
# compute the Nadaraya-Watson estimate

# with bandwidth equal to 0.4 (note that
# 100^(-0.2) = 0.398)
smpl full
m = nadarwat(y, x, 0.4)
# show m(x) for the fake x values only

smpl 101 120
print x m -o
and running it produces
x m
101 -1.8 1.165934

102 -1.6 0.730221
103 -1.4 0.314705
104 -1.2 0.026057
105 -1.0 -0.131999
106 -0.8 -0.215445
107 -0.6 -0.269257
108 -0.4 -0.304451
109 -0.2 -0.306448
110 0.0 -0.238766
111 0.2 -0.038837
112 0.4 0.354660
113 0.6 0.908178
114 0.8 1.485178
115 1.0 2.000003
116 1.2 2.460100
117 1.4 2.905176
118 1.6 3.380874
119 1.8 3.927682
120 2.0 4.538364
Chapter 41
MIDAS models
The acronym MIDAS stands for “Mixed Data Sampling”. MIDAS models can essentially be described
as models where one or more independent variables are observed at a higher frequency than the
dependent variable, and possibly an ad-hoc parsimonious parameterization is adopted. See Ghysels
et al., 2004; Ghysels, 2015; Armesto et al., 2010 for a fuller introduction. Naturally, these models
require easy handling of multiple-frequency data. The way this is done in gretl is explained in
Chapter 20; in this chapter, we concentrate on the numerical aspects of estimation.
41.1 Parsimonious parameterizations

The simplest MIDAS regression specification — known as “unrestricted MIDAS” or U-MIDAS — simply
includes p lags of a high-frequency regressor, each with its own parameter to be estimated (which
can be done via OLS). A typical case can be written as
k
X
yt = β0 + αyt−1 + δi xτ−i + εt , (41.1)
i=0
where τ represents “high-frequency time”. Obvious generalizations of this specification include a

higher AR order for y and inclusion of additional high-frequency regressors.
Estimation of (41.1) can easily be accomplished via OLS. However, it is more common to enforce
parsimony by making the individual coefficients on lagged high-frequency terms a function of a
relatively small number of hyperparameters, as in
yt = β0 + αyt−1 + γW (xτ , xτ−1 , . . . , xτ−k ; θ) + εt (41.2)
where W (·) is a weighting function associated with a given MIDAS specification, θ is a vector of
hyperparameters.
This presents a couple of computational questions: how to calculate the per-lag coefficients given
the values of the hyperparameters, and how best to estimate the value of the hyperparameters?
Hansl is functional enough to allow a savvy user to address these questions from scratch, but
of course it’s helpful to have some built-in high-level functionality. At present gretl can handle
natively four commonly used parameterizations: normalized exponential Almon, normalized beta
(with or without a zero last coefficient), and plain (non-normalized) Almon polynomial. The Almon
variants take one or more parameters (two being a common choice). The beta variants take either
two or three parameters. Full details on the forms taken by the W (·) function are provided in
section 41.3.
All variants are handled by the functions mweights and mgradient. These functions work as
follows.
• mweights takes three arguments: the number of lags required (p), the k-vector of hyperpa-
rameters (θ), and an integer code or string indicating the method (see Table 41.1). It returns
a p-vector containing the coefficients.
• mgradient takes three arguments, just like mweights. However, this function returns a p × k
matrix holding the (analytical) gradient of the p coefficients or weights with respect to the k
elements of θ.
403
Chapter 41. MIDAS models 404
Parameterization code string

Normalized exponential Almon 1 "nealmon"
Normalized beta, zero last lag 2 "beta0"
Normalized beta, non-zero last lag 3 "betan"
Almon polynomial 4 "almonp"
One-parameter beta 5 "beta1"
Table 41.1: MIDAS parameterizations
In the case of the non-normalized Almon polynomial the γ coefficient in (41.2) is identically 1.0
and is omitted. The "beta1" case is the the same as the two-parameter "beta0" except that θ1 is
constrained to equal 1, leaving θ2 as the only free parameter. Ghysels and Qian (2016) make a case
for use of this particularly parsimonious version.1
An additional function is provided for convenience: it is named mlincomb and it combines mweights
with the long-standing lincomb function, which takes a list (of series) argument followed by a vec-
tor of coefficients and produces a series result, namely a linear combination of the elements of the
list. If we have a suitable list X available, we can do, for example,
series foo = mlincomb(X, theta, "beta0")
This is equivalent to
series foo = lincomb(X, mweights(nelem(X), theta, "beta0"))
but saves a little typing and some CPU cycles.
41.2 Estimating MIDAS models

Gretl offers a dedicated command, midasreg, for estimation of MIDAS models. (There’s a corre-
sponding item, MIDAS, under the Time series section of the Model menu in the gretl GUI.) We begin
by discussing that, then move on to possibilities for defining your own estimator.
The syntax of midasreg looks like this:
midasreg depvar xlist ; midas-terms [ options ]
The depvar slot takes the name (or series ID number) of the dependent variable, and xlist is
the list of regressors that are observed at the same frequency as the dependent variable; this list
may contain lags of the dependent variable. The midas-terms slot accepts one or more specifica-
tion(s) for high-frequency terms. Each of these specifications must conform to one or other of the
following patterns:
1 mds(mlist, minlag, maxlag, type, theta)
2 mdsl(llist, type, theta)
In case 1 mlist must be a MIDAS list, as defined above, which contains a full set of per-period series
(but no lags). Lags will be generated automatically, governed by the minlag and maxlag (integer)
arguments, which may be given as numerical values or the names of predefined scalar variables.
The integer (or string) type argument represents the type of parameterization; in addition to the
values 1 to 4 defined in Table 41.1 a value of 0 (or the string "umidas") indicates unrestricted
MIDAS.
In case 2 llist is assumed to be a list that already contains the required set of high-frequency
lags—as may be obtained via the hflags function described in section 20.3 — hence minlag and
maxlag are not wanted.
1 Note, however, that at present "beta1" cannot be mixed with other parameterizations in a single model.
The final theta argument is optional in most cases (implying an automatic initialization of the
hyperparameters). If this argument is given it must take one of the following forms:
1. The name of a matrix (vector) holding initial values for the hyperparameters, or a simple
expression which defines a matrix using scalars, such as {1, 5}.
2. The keyword null, indicating that an automatic initialization should be used (as happens
when this argument is omitted).
3. An integer value (in numerical form), indicating how many hyperparameters should be used
(which again calls for automatic initialization).
The third of these forms is required if you want automatic initialization in the Almon polynomial
case, since we need to know how many terms you wish to include. (In the normalized exponential
Almon case we default to the usual two hyperparameters if theta is omitted or given as null.)
The midasreg syntax allows the user to specify multiple high-frequency predictors, if wanted: these
can have different lag specifications, different parameterizations and/or different frequencies.
The options accepted by midasreg include --quiet (suppress printed output), --verbose (show
detail of iterations, if applicable) and --robust (use a HAC estimator of the Newey–West type in
computing standard errors). Two additional specialized options are described below.
Examples of usage
Suppose we have a dependent variable named dy and a MIDAS list named dX, and we wish to run
a MIDAS regression using one lag of the dependent variable and high-frequency lags 1 to 10 of the
series in dX. The following will produce U-MIDAS estimates:
midasreg dy const dy(-1) ; mds(dX, 1, 10, 0)
The next lines will produce estimates for the normalized exponential Almon parameterization with
two coefficients, both initialized to zero:
midasreg dy const dy(-1) ; mds(dX, 1, 10, "nealmon", {0,0})
In the examples above, the required lags will be added to the dataset automatically then deleted
after use. If you are estimating several models using a single set of MIDAS lags it is more efficient to
create the lags once and use the mdsl specifier. For example, the following estimates three variant
parameterizations (exponential Almon, beta with zero last lag, and beta with non-zero last lag) on
the same data:

midasreg dy 0 dy(-1) ; mdsl(dXL, "nealmon", {0,0})
midasreg dy 0 dy(-1) ; mdsl(dXL, "beta0", {1,5})
midasreg dy 0 dy(-1) ; mdsl(dXL, "betan", {1,1,0})
Any additional MIDAS terms should be separated by spaces, as in
midasreg dy const dy(-1) ; mds(dX,1,9,1,theta1) mds(Z,1,6,3,theta2)
Replication exercise
We give a substantive illustration of midasreg in Listing 41.1. This replicates the first practical
example discussed by Ghysels in the user’s guide titled MIDAS Matlab Toolbox,2 The dependent
2 See Ghysels (2015). This document announces itself as Version 2.0 of the guide and is dated November 1, 2015.
The example we’re looking at appears on pages 24–26; the associated Matlab code can be found in the program
appADLMIDAS1.m.
variable is the quarterly log-difference of real GDP, named dy in our script. The independent vari-
ables are the first lag of dy and monthly lags 3 to 11 of the monthly log-difference of non-farm
payroll employment (named dXL in our script). Therefore, in this case equation (41.2) becomes
yt = α + βyt−1 + γW (xτ−3 , xτ−4 , . . . , xτ−11 ; θ) + εt
and in the U-MIDAS case the model comes down to

9
X
yt = α + βyt−1 + δi xτ−i−2 + εt
i=1
The script exercises all five of the parameterizations mentioned above,3 and in each case the results
of 9 pseudo-out-of-sample forecasts are recorded so that their Root Mean Square Errors can be
compared.
The data file used in the replication, gdp_midas.gdt, was contructed as described in section 20.1
(and as noted there, it is included in the current gretl package). Part of the output from the replica-
tion script is shown in Listing 41.2. The γ coefficient is labeled HF_slope in the gretl output.
For reference, output from Matlab (version R2016a for Linux) is available at http://gretl.sourceforge.
net/midas/matlab_output.txt. For the most part (in respect of regression coefficients and aux-
iliary statistics such as R 2 and forecast RMSEs), gretl’s output agrees with that of Matlab to the
extent that one can reasonably expect on nonlinear problems — that is, to at least 4 significant dig-
its in all but a few instances.4 Standard errors are not quite so close across the two programs,
particularly for the hyperparameters of the beta and exponential Almon functions. We show these
in Table 41.2.
2-param beta 3-param beta Exp Almon

Matlab gretl Matlab gretl Matlab gretl
const 0.135 0.140 0.143 0.146 0.135 0.140
dy(-1) 0.116 0.118 0.116 0.119 0.116 0.119
HF slope 0.559 0.575 0.566 0.582 0.562 0.575
θ1 0.067 0.106 0.022 0.027 2.695 6.263
θ2 9.662 17.140 1.884 2.934 0.586 1.655
θ3 0.022 0.027
Table 41.2: Comparison of standard errors from MIDAS regressions
Differences of this order are not unexpected, however, when different methods are used to calcu-
late the covariance matrix for a nonlinear regression. The Matlab standard errors are based on a
numerical approximation to the Hessian at convergence, while those produced by gretl are based
on a Gauss–Newton Regression, as discussed and recommended in Davidson and MacKinnon (2004,
chapter 6).
Underlying methods
The midasreg command calls one of several possible estimation methods in the background, de-
pending on the MIDAS specification(s). As shown in Listing 41.2, this is flagged in a line of output
immediately preceding the “Dependent variable” line. If the only specification type is U-MIDAS,
the method is OLS. Otherwise it is one of three variants of Nonlinear Least Squares.
• Levenberg–Marquardt. This is the back-end for gretl’s nls command.

3 The Matlab program includes an additional parameterization not supported by gretl, namely a step-function.
4 Nonlinear results, even for a given software package, are subject to slight variation depending on the compiler used
and the exact versions of supporting numerical libraries.
Listing 41.1: Script to replicate results given by Ghysels [Download ▼]
set verbose off

open gdp_midas.gdt --quiet
# form the dependent variable

series dy = 100 * ldiff(qgdp)
# form list of high-frequency lagged log differences
list X = payems*
# initialize matrix to collect forecasts
matrix FC = {}
# estimation sample
smpl 1985:1 2009:1
print "=== unrestricted MIDAS (umidas) ==="

midasreg dy 0 dy(-1) ; mdsl(dXL, 0)
fcast --out-of-sample --static --quiet
FC ~= $fcast
print "=== normalized beta with zero last lag (beta0) ==="
midasreg dy 0 dy(-1) ; mdsl(dXL, 2, {1,5})
FC ~= $fcast
print "=== normalized beta, non-zero last lag (betan) ==="

midasreg dy 0 dy(-1) ; mdsl(dXL, 3, {1,1,0})
FC ~= $fcast
print "=== normalized exponential Almon (nealmon) ==="

midasreg dy 0 dy(-1) ; mdsl(dXL, 1, {0,0})
FC ~= $fcast
print "=== Almon polynomial (almonp) ==="

midasreg dy 0 dy(-1) ; mdsl(dXL, 4, 4)
FC ~= $fcast
smpl 2009:2 2011:2

matrix my = {dy}
print "Forecast RMSEs:"
printf " umidas %.4f\n", fcstats(my, FC[,1])[2]
printf " beta0 %.4f\n", fcstats(my, FC[,2])[2]
printf " betan %.4f\n", fcstats(my, FC[,3])[2]
printf " nealmon %.4f\n", fcstats(my, FC[,4])[2]
printf " almonp %.4f\n", fcstats(my, FC[,5])[2]
Listing 41.2: Replication of Ghysels’ results, partial output
=== normalized beta, non-zero last lag (betan) ===

Model 3: MIDAS (NLS), using observations 1985:1-2009:1 (T = 97)
Using L-BFGS-B with conditional OLS
Dependent variable: dy
estimate std. error t-ratio p-value

-------------------------------------------------------
const 0.748578 0.146404 5.113 1.74e-06 ***
dy_1 0.248055 0.118903 2.086 0.0398 **
MIDAS list dXL, high-frequency lags 3 to 11
HF_slope 1.72167 0.582076 2.958 0.0039 ***

Beta1 0.998501 0.0269479 37.05 1.10e-56 ***
Beta2 2.95148 2.93404 1.006 0.3171
Beta3 -0.0743143 0.0271273 -2.739 0.0074 ***

R-squared 0.356376 Adjusted R-squared 0.321012
=== Almon polynomial (almonp) ===

Model 5: MIDAS (NLS), using observations 1985:1-2009:1 (T = 97)
Using Levenberg-Marquardt algorithm
Dependent variable: dy
estimate std. error t-ratio p-value

-------------------------------------------------------
const 0.741403 0.146433 5.063 2.14e-06 ***
dy_1 0.255099 0.119139 2.141 0.0349 **
MIDAS list dXL, high-frequency lags 3 to 11
Almon0 1.06035 1.53491 0.6908 0.4914

Almon1 0.193615 1.30812 0.1480 0.8827
Almon2 -0.140466 0.299446 -0.4691 0.6401
Almon3 0.0116034 0.0198686 0.5840 0.5607

R-squared 0.358979 Adjusted R-squared 0.323758
Forecast RMSEs:
umidas 0.5424
beta0 0.5650
betan 0.5210
nealmon 0.5642
almonp 0.5329
• L-BFGS-B with conditional OLS. L-BFGS is a “limited memory” version of the BFGS optimizer
and the trailing “-B” means that it supports bounds on the parameters, which is useful for
reasons given below.
• Golden Section search with conditional OLS. This is a line search method, used only when
there is a just a single hyperparameter to estimate.
Levenberg–Marquardt is the default NLS method, but if the MIDAS specifications include any of
the beta variants or normalized exponential Almon we switch to L-BFGS-B, unless the user gives the
--levenberg option. The ability to set bounds on the hyperparameters via L-BFGS-B is helpful, first
because the beta parameters (other than the third one, if applicable) must be non-negative but also
because one is liable to run into numerical problems (in calculating the weights and/or gradient) if
their values become too extreme. For example, we have found it useful to place bounds of −2 and
+2 on the exponential Almon parameters.
Here’s what we mean by “conditional OLS” in the context of L-BFGS-B and line search: the search
algorithm itself is only responsible for optimizing the MIDAS hyperparameters, and when the algo-
rithm calls for calculation of the sum of squared residuals given a certain hyperparameter vector we
optimize the remaining parameters (coefficients on base-frequency regressors, slopes with respect
to MIDAS terms) via OLS.
Testing for a structural break

The --breaktest option can be used to carry out the Quandt Likelihood Ratio (QLR) test for a
structural break at the stage of running the final Gauss–Newton regression (to check for conver-
gence and calculate the covariance matrix of the parameter estimates). This can be a useful aid
to diagnosis, since non-homogeneity of the data over the estimation period can lead to numerical
problems in nonlinear estimation, besides compromising the forecasting capacity of the resulting
equation. For example, when this option is given with the command to estimate the “betan” model
shown in Listing 41.2, the following result is appended to the standard output:
QLR test for structural break -

Null hypothesis: no structural break
Test statistic: chi-square(6) = 35.1745 at observation 2005:2
with asymptotic p-value = 0.000127727
Despite the strong evidence for a structural break, in this case the nonlinear estimator appears to
converge successfully. But one might wonder if a shorter estimation period could provide better
out-of-sample forecasts.
Defining your own MIDAS estimator

As explained above, the midasreg command is in effect a “wrapper” for various underlying meth-
ods. Some users may wish to undo the wrapping. (This would be required if you wish to introduce
any nonlinearity other than that associated with the stock MIDAS parameterizations, or to define
your own MIDAS parameterization).
Anyone with ambitions in this direction will presumably be quite familiar with the commands
and functions available in hansl, gretl’s scripting language, so we will not say much here beyond
presenting a couple of examples. First we show how the nls command can be used, along with the
MIDAS-related functions described in section 41.1, to estimate a model with the exponential Almon
specification.

series dy1 = dy(-1)
list X = payems*
smpl 1985:1 2009:1
# initialization via OLS

series mdX = mean(dXL)
ols dy 0 dy1 mdX --quiet
matrix b = $coeff | {0,0}’
scalar p = nelem(dXL)
# convenience matrix for computing gradient

matrix mdXL = {dXL}
# normalized exponential Almon via nls

nls dy = b[1] + b[2]*dy1 + b[3]*mdx
series mdx = mlincomb(dXL, b[4:], 1)
matrix grad = mgradient(p, b[4:], 1)
deriv b = {const, dy1, mdx} ~ (b[3] * mdXL * grad)
param_names "const dy(-1) HF_slope Almon1 Almon2"
end nls
Listing 41.3 presents a more ambitious example: we use GSSmin (Golden Section minimizer) to es-
timate a MIDAS model with the “one-parameter beta” specification (that is, the two-parameter beta
with θ1 clamped at 1). Note that while the function named beta1_SSR is specialized to the given
parameterization, midas_GNR is a fairly general means of calculating the Gauss–Newton regression
for an ADL(1) MIDAS model, and it could be generalized further without much difficulty.
Plot of coefficients
At times, it may be useful to plot the “gross” coefficients on the lags of the high-frequency series
in a MIDAS regression—that is, the normalized weights multiplied by the HF_slope coefficient
(the γ in 41.2). After estimation of a MIDAS model in the gretl GUI this is available via the item
MIDAS coefficients under the Graphs menu in the model window. It is also easily generated via
script, since the $model bundle that becomes available following the midasreg command contains
a matrix, midas_coeffs, holding these coefficients. So the following is sufficient to display the
plot:
matrix m = $model.midas_coeffs
plot m
options with-lp fit=none
literal set title "MIDAS coefficients"
literal set ylabel ’’
Caveat: this feature is at present available only for models with a single MIDAS specification.
41.3 Parameterization functions

Here we give some more detail of the MIDAS parameterizations supported by gretl.
In general the normalized coefficient or weight i (i = 1, . . . , p) is given by
f (i, θ)
wi = Pp (41.3)
k=1 f (k, θ)
such that the coefficients sum to unity.

Listing 41.3: Manual MIDAS: one-parameter beta specification [Download ▼]
set verbose off
function scalar beta1_SSR (scalar th2, const series y,

const series x, list L)
matrix theta = {1, th2}
series mdx = mlincomb(L, theta, 2)
# run OLS conditional on theta
ols y 0 x mdx --quiet
return $ess
end function
function matrix midas_GNR (const matrix theta, const series y,

const series x, list L, int type)
# Gauss-Newton regression
series mdx = mlincomb(L, theta, type)
ols y 0 x mdx --quiet
matrix b = $coeff
matrix u = {$uhat}
matrix mgrad = mgradient(nelem(L), theta, type)
matrix M = {const, x, mdx} ~ (b[3] * {L} * mgrad)
matrix V
set svd on # in case of strong collinearity
mols(u, M, null, &V)
return (b | theta) ~ sqrt(diag(V))
end function
/* main */

series dy1 = dy(-1)
list dX = ld_payem*
# estimation sample
smpl 1985:1 2009:1
matrix b = {0, 1.01, 100}

# use Golden Section minimizer
SSR = GSSmin(b, beta1_SSR(b[1], dy, dy1, dXL), 1.0e-6)
printf "SSR (GSS) = %.15g\n", SSR
matrix theta = {1, b[1]}’ # column vector needed
matrix bse = midas_GNR(theta, dy, dy1, dXL, 2)
bse[4,2] = $nan # mask std error of clamped coefficient
modprint bse "const dy(-1) HF_slope Beta1 Beta2"
In the normalized exponential Almon case with m parameters the function f (·) is
 
m
X
j
f (i, θ) = exp  θj i  (41.4)
j=1
So in the usual two-parameter case we have
exp θ1 i + θ2 i2

wi = Pp
k=1 exp (θ1 k + θ2 k2 )
and equal weighting is obtained when θ1 = θ2 = 0.
In the standard, two-parameter normalized beta case we have
f (i, θ) = (i− /p − )θ1 −1 · (1 − i− /p − )θ2 −1 (41.5)
where p − = p − 1, and i− = i − 1 except at the end-points, i = 1 and i = p, where we add and

subtract, respectively, machine epsilon to avoid numerical problems. This formulation constrains
the coefficient on the last lag to be zero — provided that the weights are declining at higher lags,
a condition that is ensured if θ2 is greater than θ1 by a sufficient margin. The special case of
θ1 = θ2 = 1 yields equal weights at all lags. A third parameter can be used to allow a non-zero
final weight, even in the case of declining weights. Let wi denote the normalized weight obtained
by using (41.5) in (41.3). Then the modified variant with additional parameter θ3 can be written as
(3) wi + θ 3
wi =
1 + pθ3
(3)
That is, we add θ3 to each weight then renormalize so that the wi values again sum to unity.
In Eric Ghysels’ Matlab code the two beta variants are labeled “normalized beta density with a zero
last lag” and “normalized beta density with a non-zero last lag” respectively. Note that while the
two basic beta parameters must be positive, the third additive parameter may be positive, negative
or zero.
In the case of the plain Almon polynomial of order m, coefficient i is given by

m
X
wi = θj ij−1
j=1
Note that no normalization is applied in this case, so no additional coefficient should be placed
before the MIDAS lags term in the context of a regression.
Analytical gradients
Here we set out the expressions for the analytical gradients produced by the mgradient function,
and also used internally by the midasreg command. In these expressions f (i, θ) should be un-
derstood as referring back to the
P specific forms noted above for the exponential Almon and beta
distributions. The summation k should be understood as running from 1 to p.
For the normalized exponential Almon case, the gradient is
dwi f (i, θ)ij f (i, θ) Xh i

= P − P 2 f (k, θ)kj
dθj k f (k, θ) k f (k, θ) k
 h i
j
P
k f (k, θ)k
= wi ij − P 
k f (k, θ)
For the two-parameter normalized beta case it is
dwi f (i, θ) log(i− /p − ) f (i, θ) X

f (k, θ) log(k− /p − )

= P − P 2
dθ1 k f (k, θ) k f (k, θ) k
P − −
!
− − k f (k, θ) log(k /p )
= wi log(i /p ) − P
k f (k, θ)
dwi f (i, θ) log(1 − i− /p − ) f (i, θ) X

f (k, θ) log(1 − k− /p − )

= P − P 2
dθ2 k f (k, θ) k f (k, θ) k
!
f (k, θ) log(1 − k− /p − )
P
= wi log(1 − i− /p − ) − k P
k f (k, θ)
And for the three-parameter beta, we have

(3)
dwi 1 dwi
=
dθ1 1 + pθ3 dθ1
(3)
dwi 1 dwi
=
dθ2 1 + pθ3 dθ2
(3)
dwi 1 p(wi + θ3 )
= −
dθ3 1 + pθ3 (1 + pθ3 )2
For the (non-normalized) Almon polynomial the gradient is simply
dwi
= ij−1
dθj
Part III
Technical details
414
Chapter 42
Gretl and ODBC
Gretl provides a method for retrieving data from databases which support the Open Database
Connectivity (ODBC) standard. Most users won’t be interested in this, but there may be some for
whom this feature matters a lot—typically, those who work in an environment where huge data
collections are accessible via a Data Base Management System (DBMS).
In the following section we explain what is needed for ODBC support in gretl. We provide some
background information on how ODBC works in section 42.2, and explain the details of getting gretl
to retrieve data from a database in section 42.3. Section 42.4 provides some example of usage, and
section 42.5 gives some details on the management of ODBC connections.
42.1 ODBC support

The piece of software that bridges between gretl and the ODBC system is a dynamically loaded
“plugin”. This is included in the gretl packages for MS Windows and Mac OS X. On other unix-type
platforms (notably Linux) you may have to build gretl from source to get ODBC support. This
is because the plugin depends on having unixODBC installed, which we cannot assume to be the
case on typical Linux systems. To enable the ODBC plugin when building gretl, you must pass the
option --with-odbc to gretl’s configure script. In addition, if unixODBC is installed in a non-
standard location you will have to specify its installation prefix using --with-ODBC-prefix, as in
(for example)
./configure --with-odbc --with-ODBC-prefix=/opt/ODBC
42.2 ODBC base concepts

ODBC is short for Open DataBase Connectivity, a group of software methods that enable a client to
interact with a database server. The most common operation is when the client fetches some data
from the server. ODBC acts as an intermediate layer between client and server, so the client “talks”
to ODBC rather than accessing the server directly (see Figure 42.1).
ODBC
query
data
Figure 42.1: Retrieving data via ODBC
For the above mechanism to work, it is necessary that the relevant ODBC software is installed
and working on the client machine (contact your DB administrator for details). At this point, the
database (or databases) that the server provides will be accessible to the client as a data source
with a specific identifier (a Data Source Name or DSN); in most cases, a username and a password
are required to connect to the data source.
415
Chapter 42. Gretl and ODBC 416
Once the connection is established, the user sends a query to ODBC, which contacts the database
manager, collects the results and sends them back to the user. The query is almost invariably
formulated in a special language used for the purpose, namely SQL.1 We will not provide here an
SQL tutorial: there are many such tutorials on the Net; besides, each database manager tends to
support its own SQL dialect so the precise form of an SQL query may vary slightly if the DBMS on
the other end is Oracle, MySQL, PostgreSQL or something else.
Suffice it to say that the main statement for retrieving data is the SELECT statement. Within a DBMS,
data are organized in tables, which are roughly equivalent to spreadsheets. The SELECT statement
returns a subset of a table, which is itself a table. For example, imagine that the database holds a
table called “NatAccounts”, containing the data shown in Table 42.1.
year qtr gdp consump tradebal

1970 1 584763 344746.9 −5891.01
1970 2 597746 350176.9 −7068.71
1970 3 604270 355249.7 −8379.27
1970 4 609706 361794.7 −7917.61
1971 1 609597 362490 −6274.3
1971 2 617002 368313.6 −6658.76
1971 3 625536 372605 −4795.89
1971 4 630047 377033.9 −6498.13
Table 42.1: The “NatAccounts” table
The SQL statement
SELECT qtr, tradebal, gdp FROM NatAccounts WHERE year=1970;
produces the subset of the original data shown in Table 42.2.
qtr tradebal gdp

1 −5891.01 584763
2 −7068.71 597746
3 −8379.27 604270
4 −7917.61 609706
Table 42.2: Result of a SELECT statement
Gretl provides a mechanism for forwarding your query to the DBMS via ODBC and including the
results in your currently open dataset.
42.3 Syntax
At present we do not offer a graphical interface for ODBC import; this must be done via the com-
mand line interface. The two commands used for fetching data via an ODBC connection are open
and data.
The open command is used for connecting to a DBMS: its syntax is
open dsn=database [user=username] [password=password] --odbc
The user and password items are optional; the effect of this command is to initiate an ODBC
connection. It is assumed that the machine gretl runs on has a working ODBC client installed.
1 See http://en.wikipedia.org/wiki/SQL.
In order to actually retrieve the data, the data command is used. Its syntax is:
data series [obs-format=format-string] query=query-string --odbc
where:
series is a list of names of gretl series to contain the incoming data, separated by spaces. Note that
these series need not exist pior to the ODBC import.
format-string is an optional parameter, used to handle cases when a “rectangular” organisation of

the database cannot be assumed (more on this later);
query-string is a string containing the SQL statement used to extract the data.
There should be no spaces around the equals signs in the obs-format and query fields in the data
command.
The query-string can, in principle, contain any valid SQL statement which results in a table. This
string may be specified directly within the command, as in
data x query="SELECT foo FROM bar" --odbc
which will store into the gretl variable x the content of the column foo from the table bar. However,
since in a real-life situation the string containing the SQL statement may be rather long, it may be
best to store it in a string variable. For example:
string SqlQry = "SELECT foo1, foo2 FROM bar"

data x y query=SqlQry --odbc
The observation format specifier

If the optional parameter obs-format is absent, as in the above example, the SQL query should
return k columns of data, where k is the number of series names listed in the data command.
It may be necessary to include a smpl command before the data command to set up the right
“window” for the incoming data. In addition, if one cannot assume that the data will be delivered
in the correct order (typically, chronological order), the SQL query should contain an appropriate
ORDER BY clause.
The optional format string is used for those cases when there is no certainty that the data from the
query will arrive in the same order as the gretl dataset. This may happen when missing values are
interspersed within a column, or with data that do not have a natural ordering, e.g. cross-sectional
data. In this case, the SQL statement should return a table with m + k columns, where the first m
columns are used to identify the observation or row in the gretl dataset into which the actual data
values in the final k columns should be placed. The obs-format string is used to translate the first
m fields into a string which matches the string gretl uses to identify observations in the currently
open dataset. Up to three columns can be used for this purpose (m ≤ 3).
Note that the strings gretl uses to identify observations can be seen by printing any variable “by
observation”, as in
print index --byobs
(The series named index is automatically added to a dataset created via the nulldata command.)
The format specifiers available for use with obs-format are as follows:
%d print an integer value

%s print an string value
%g print a floating-point value
In addition the format can include literal characters to be passed through, such as slashes or colons,
to make the resulting string compatible with gretl’s observation identifiers.
For example, consider the following fictitious case: we have a 5-days-per-week dataset, to which we
want to add the stock index for the Verdurian market;2 it so happens that in Verduria Saturdays
are working days but Wednesdays are not. We want a column which does not contain data on
Saturdays, because we wouldn’t know where to put them, but at the same time we want to place
missing values on all the Wednesdays.
In this case, the following syntax could be used
string QRY="SELECT year,month,day,VerdSE FROM AlmeaIndexes"

data y obs-format="%d-%d-%d" query=QRY --odbc
The column VerdSE holds the data to be fetched, which will go into the gretl series y. The first
three columns are used to construct a string which identifies the day. Daily dates take the form
YYYY-MM-DD in gretl. If a row from the DBMS produces the observation string 2008-04-01 this will
match OK (it’s a Tuesday), but 2008-04-05 will not match since it is a Saturday; the corresponding
row will therefore be discarded. On the other hand, since no string 2008-04-23 will be found in
the data coming from the DBMS (it’s a Wednesday), that entry is left blank in our series y.
42.4 Examples
Table Consump Table DATA

Field Type
Field Type
year decimal(4,0)
time decimal(7,2)
qtr decimal(1,0)
income decimal(16,6)
varname varchar(16)
consump decimal(16,6)
xval decimal(20,10)
Table 42.3: Example AWM database – structure
Table Consump Table DATA

1970 1 CAN −517.9085000000
1970 2 CAN 662.5996000000
1970.00 424278.975500 344746.944000
1970 3 CAN 1130.4155000000
1970.25 433218.709400 350176.890400
1970 4 CAN 467.2508000000
1970.50 440954.219100 355249.672300
1970 1 COMPR 18.4000000000
1970.75 446278.664700 361794.719900
1970 2 COMPR 18.6341000000
1971.00 447752.681800 362489.970500
1970 3 COMPR 18.3000000000
1971.25 453553.860100 368313.558500
1970 4 COMPR 18.2663000000
1971.50 460115.133100 372605.015300
1970 1 D1 1.0000000000
...
1970 2 D1 0.0000000000
...
Table 42.4: Example AWM database — data
In the following examples, we will assume that access is available to a database known to ODBC
with the data source name “AWM”, with username “Otto” and password “Bingo”. The database
“AWM” contains quarterly data in two tables (see 42.3 and 42.4):
2 See http://www.almeopedia.com/index.php/Verduria.
The table Consump is the classic “rectangular” dataset; that is, its internal organization is the same
as in a spreadsheet or econometrics package: each row is a data point and each column is a variable.
The structure of the DATA table is different: each record is one figure, stored in the column xval,
and the other fields keep track of which variable it belongs to, for which date.
Listing 42.1: Simple query from a rectangular table
nulldata 160
setobs 4 1970:1 --time
open dsn=AWM user=Otto password=Bingo --odbc
string Qry = "SELECT consump, income FROM Consump"

data cons inc query=Qry --odbc
Listing 42.1 shows a query for two series: first we set up an empty quarterly dataset. Then we
connect to the database using the open statement. Once the connection is established we retrieve
two columns from the Consump table. No observation string is required because the data already
have a suitable structure; we need only import the relevant columns.
Listing 42.2: Simple query from a non-rectangular table
string S = "select year, qtr, xval from DATA \

where varname=’WLN’ ORDER BY year, qtr"
data wln obs-format="%d:%d" query=S --odbc
In example 42.2, by contrast, we make use of the observation string since we are drawing from the
DATA table, which is not rectangular. The SQL statement stored in the string S produces a table with
three columns. The ORDER BY clause ensures that the rows will be in chronological order, although
this is not strictly necessary in this case.
42.5 Connectivity details

It may be helpful to supply some details on gretl’s management of ODBC connections. First, when
the open command is invoked with the --odbc option, gretl checks to see if a connection to the
specified DSN (Data Source Name) can be established via the ODBC function SQLConnect. If not, an
error is flagged; if so, the connection is dropped (SQLDisconnect) but the DSN details are stored.
The stored DSN then remains the implicit source for subsequent invocation of the data command,
with the --odbc option, until a countermanding open command is issued.
Each time an OBDC-related data command is issued, gretl attempts to re-establish a connection to
the given DSN; the connection is dropped once the data transfer is complete.
Listing 42.3: Handling of missing values for a non-rectangular table
string foo = "select year, qtr, xval from DATA \

where varname=’STN’ AND qtr>1"
data bar obs-format="%d:%d" query=foo --odbc
print bar --byobs
Listing 42.3 shows what happens if the rows in the outcome from the SELECT statement do not
match the observations in the currently open gretl dataset. The query includes a condition which
filters out all the data from the first quarter. The query result (invisible to the user) would be
something like
+------+------+---------------+
| year | qtr | xval |
+------+------+---------------+
| 1970 | 2 | 7.8705000000 |
| 1970 | 3 | 7.5600000000 |
| 1970 | 4 | 7.1892000000 |
| 1971 | 2 | 5.8679000000 |
| 1971 | 3 | 6.2442000000 |
| 1971 | 4 | 5.9811000000 |
| 1972 | 2 | 4.6883000000 |
| 1972 | 3 | 4.6302000000 |
...
Internally, gretl fills the variable bar with the corresponding value if it finds a match; otherwise, NA
is used. Printing out the variable bar thus produces
Obs bar
1970:1
1970:2 7.8705
1970:3 7.5600
1970:4 7.1892
1971:1
1971:2 5.8679
1971:3 6.2442
1971:4 5.9811
1972:1
1972:2 4.6883
1972:3 4.6302
...
Chapter 43
Gretl and TEX
43.1 Introduction
TEX — initially developed by Donald Knuth of Stanford University and since enhanced by hundreds
of contributors around the world — is the gold standard of scientific typesetting. Gretl provides
various hooks that enable you to preview and print econometric results using the TEX engine, and
to save output in a form suitable for further processing with TEX.
This chapter explains the finer points of gretl’s TEX-related functionality. The next section describes
the relevant menu items; section 43.3 discusses ways of fine-tuning TEX output; and section 43.4
gives some pointers on installing (and learning) TEX if you do not already have it on your computer.
(Just to be clear: TEX is not included with the gretl distribution; it is a separate package, including
several programs and a large number of supporting files.)
Before proceeding, however, it may be useful to set out briefly the stages of production of a final
document using TEX. For the most part you don’t have to worry about these details, since, in regard
to previewing at any rate, gretl handles them for you. But having some grasp of what is going on
behind the scences will enable you to understand your options better.
The first step is the creation of a plain text “source” file, containing the text or mathematics to
be typset, interspersed with mark-up that defines how it should be formatted. The second step
is to run the source through a processing engine that does the actual formatting. Typically this a
program called pdflatex that generates PDF output.1 (In times gone by it was a program called latex
that generated so-called DVI (device-independent) output.)
So gretl calls pdflatex to process the source file. On MS Windows and Mac OS X, gretl expects the
operating system to find the default viewer for PDF output. On GNU/Linux you can specify your
preferred PDF viewer via the menu item “Tools, Preferences, General,” under the “Programs” tab.
43.2 TEX-related menu items

The model window
The fullest TEX support in gretl is found in the GUI model window. This has a menu item titled
“LaTeX” with sub-items “View”, “Copy”, “Save” and “Equation options” (see Figure 43.1).
The first three sub-items have branches titled “Tabular” and “Equation”. By “Tabular” we mean that
the model is represented in the form of a table; this is the fullest and most explicit presentation of
the results. See Table 43.1 for an example; this was pasted into the manual after using the “Copy,
Tabular” item in gretl (a few lines were edited out for brevity).
The “Equation” option is fairly self-explanatory — the results are written across the page in equation
format, as below:
ENROLL
\ = 0.241105 + 0.223530 CATHOL − 0.00338200 PUPIL − 0.152643 WHITE
(0.066022) (0.04597) (0.0027196) (0.040706)
T = 51 R̄ 2 = 0.4462 F (3, 47) = 14.431 σ̂ = 0.038856

1 Experts will be aware of something called “plain T X”, which is processed using the program tex. The great majority
E
of TEX users, however, use the LATEX macros, initially developed by Leslie Lamport. gretl does not support plain TEX.
421
Chapter 43. Gretl and TEX 422
Figure 43.1: LATEX menu in model window
Table 43.1: Example of LATEX tabular output
Model 1: OLS estimates using the 51 observations 1–51

Dependent variable: ENROLL
Variable Coefficient Std. Error t-statistic p-value
const 0.241105 0.0660225 3.6519 0.0007

CATHOL 0.223530 0.0459701 4.8625 0.0000
PUPIL −0.00338200 0.00271962 −1.2436 0.2198
WHITE −0.152643 0.0407064 −3.7499 0.0005
Mean of dependent variable 0.0955686

S.D. of dependent variable 0.0522150
Sum of squared residuals 0.0709594
Standard error of residuals (σ̂ ) 0.0388558
Unadjusted R 2 0.479466
2
Adjusted R̄ 0.446241
F (3, 47) 14.4306
(standard errors in parentheses)
The distinction between the “Copy” and “Save” options (for both tabular and equation) is twofold.
First, “Copy” puts the TEX source on the clipboard while with “Save” you are prompted for the name
of a file into which the source should be saved. Second, with “Copy” the material is copied as a
“fragment” while with “Save” it is written as a complete file. The point is that a well-formed TEX
source file must have a header that defines the documentclass (article, report, book or whatever)
and tags that say \begin{document} and \end{document}. This material is included when you do
“Save” but not when you do “Copy”, since in the latter case the expectation is that you will paste
the data into an existing TEX source file that already has the relevant apparatus in place.
The items under “Equation options” should be self-explanatory: when printing the model in equa-
tion form, do you want standard errors or t-ratios displayed in parentheses under the parameter
estimates? The default is to show standard errors; if you want t-ratios, select that item.
Other windows
Several other sorts of output windows also have TEX preview, copy and save enabled. In the case of
windows having a graphical toolbar, look for the TEX button. Figure 43.2 shows this icon (second
from the right on the toolbar) along with the dialog that appears when you press the button.
Figure 43.2: TEX icon and dialog
One aspect of gretl’s TEX support that is likely to be particularly useful for publication purposes is
the ability to produce a typeset version of the “model table” (see section 3.4). An example of this is
shown in Table 43.2.
43.3 Fine-tuning typeset output

There are three aspects to this: adjusting the appearance of the output produced by gretl in
LATEX preview mode; adjusting the formatting of gretl’s tabular output for models when using the
tabprint command; and incorporating gretl’s output into your own TEX files.
Previewing in the GUI

As regards preview mode, you can control the appearance of gretl’s output using a file named
gretlpre.tex, which should be placed in your gretl user directory (see the Gretl Command Ref-
erence). If such a file is found, its contents will be used as the “preamble” to the TEX source. The
default value of the preamble is as follows:
\documentclass[11pt]{article}
\usepackage[utf8]{inputenc}
Table 43.2: Example of model table output
OLS estimates
Dependent variable: ENROLL
Model 1 Model 2 Model 3
const 0.2907∗∗ 0.2411∗∗ 0.08557

(0.07853) (0.06602) (0.05794)
CATHOL 0.2216∗∗ 0.2235∗∗ 0.2065∗∗

(0.04584) (0.04597) (0.05160)
PUPIL −0.003035 −0.003382 −0.001697

(0.002727) (0.002720) (0.003025)
∗∗ ∗∗
WHITE −0.1482 −0.1526
(0.04074) (0.04071)
ADMEXP −0.1551
(0.1342)
n 51 51 51
2
R̄ 0.4502 0.4462 0.2956
ℓ 96.09 95.36 88.69
Standard errors in parentheses

* indicates significance at the 10 percent level
** indicates significance at the 5 percent level
\usepackage{amsmath}
\usepackage{dcolumn,longtable}
\begin{document}
\thispagestyle{empty}
Note that the amsmath and dcolumn packages are required. (For some sorts of output the longtable
package is also needed.) Beyond that you can, for instance, change the type size or the font by al-
tering the documentclass declaration or including an alternative font package.
In addition, if you wish to typeset gretl output in more than one language, you can set up per-
language preamble files. A “localized” preamble file is identified by a name of the form gretlpre_xx.tex,
where xx is replaced by the first two letters of the current setting of the LANG environment vari-
able. For example, if you are running the program in Polish, using LANG=pl_PL, then gretl will do
the following when writing the preamble for a TEX source file.
1. Look for a file named gretlpre_pl.tex in the gretl user directory. If this is not found, then
2. look for a file named gretlpre.tex in the gretl user directory. If this is not found, then
3. use the default preamble.
Conversely, suppose you usually run gretl in a language other than English, and have a suitable
gretlpre.tex file in place for your native language. If on some occasions you want to produce TEX
output in English, then you could create an additional file gretlpre_en.tex: this file will be used
for the preamble when gretl is run with a language setting of, say, en_US.
Command-line options
After estimating a model via a script— or interactively via the gretl console or using the command-
line program gretlcli—you can use the commands tabprint or eqnprint to print the model to
file in tabular format or equation format respectively. These options are explained in the Gretl
Command Reference.
If you wish alter the appearance of gretl’s tabular output for models in the context of the tabprint
command, you can specify a custom row format using the --format flag. The format string must
be enclosed in double quotes and must be tied to the flag with an equals sign. The pattern for the
format string is as follows. There are four fields, representing the coefficient, standard error, t-
ratio and p-value respectively. These fields should be separated by vertical bars; they may contain
a printf-type specification for the formatting of the numeric value in question, or may be left
blank to suppress the printing of that column (subject to the constraint that you can’t leave all the
columns blank). Here are a few examples:
--format="%.4f|%.4f|%.4f|%.4f"
--format="%.4f|%.4f|%.3f|"
--format="%.5f|%.4f||%.4f"
--format="%.8g|%.8g||%.4f"
The first of these specifications prints the values in all columns using 4 decimal places. The second
suppresses the p-value and prints the t-ratio to 3 places. The third omits the t-ratio. The last one
again omits the t, and prints both coefficient and standard error to 8 significant figures.
Once you set a custom format in this way, it is remembered and used for the duration of the gretl
session. To revert to the default formatting you can use the special variant --format=default.
Further editing
Once you have pasted gretl’s TEX output into your own document, or saved it to file and opened it
in an editor, you can of course modify the material in any wish you wish. In some cases, machine-
generated TEX is hard to understand, but gretl’s output is intended to be human-readable and
-editable. In addition, it does not use any non-standard style packages. Besides the standard LATEX
document classes, the only files needed are, as noted above, the amsmath, dcolumn and longtable
packages. These should be included in any reasonably full TEX implementation.
43.4 Installing and learning TEX

This is not the place for a detailed exposition of these matters, but here are a few pointers.
So far as we know, every GNU/Linux distribution has a package or set of packages for TEX, and in
fact these are likely to be installed by default. Check the documentation for your distribution. For
MS Windows, several packaged versions of TEX are available: one of the most popular is MiKTEX at
http://www.miktex.org/. For Mac OS X a nice implementation is iTEXMac, at http://itexmac.
sourceforge.net/. An essential starting point for online TEX resources is the Comprehensive TEX
Archive Network (CTAN) at http://www.ctan.org/.
As for learning TEX, many useful resources are available both online and in print. Among online
guides, Tony Roberts’ “LATEX: from quick and dirty to style and finesse” is very helpful, at
http://www.sci.usq.edu.au/staff/robertsa/LaTeX/latexintro.html
An excellent source for advanced material is The LATEX Companion (Goossens et al., 2004).
Chapter 44
Gretl and R
44.1 Introduction
R is, by far, the largest free statistical project.1 Like gretl, it is a GNU project and the two have a
lot in common; however, gretl’s approach focuses on ease of use much more than R, which instead
aims to encompass the widest possible range of statistical procedures.
As is natural in the free software ecosystem, we don’t view ourselves as competitors to R,2 but
rather as projects sharing a common goal who should support each other whenever possible. For
this reason, gretl provides a way to interact with R and thus enable users to pool the capabilities of
the two packages.
In this chapter, we will explain how to exploit R’s power from within gretl. We assume that the
reader has a working installation of R available and a basic grasp of R’s syntax.3
Despite several valiant attempts, no graphical shell has gained wide acceptance in the R community:
by and large, the standard method of working with R is by writing scripts, or by typing commands
at the R prompt, much in the same way as one would write gretl scripts or work with the gretl
console. In this chapter, the focus will be on the methods available to execute R commands without
leaving gretl.
44.2 Starting an interactive R session

The easiest way to use R from gretl is in interactive mode. Once you have your data loaded in gretl,
you can select the menu item “Tools, Start GNU R” and an interactive R session will be started, with
your dataset automatically pre-loaded.
A simple example: OLS on cross-section data

For this example we use Ramanathan’s dataset data4-1, one of the sample files supplied with gretl.
We first run, in gretl, an OLS regression of price on sqft, bedrms and baths. The basic results are
shown in Table 44.1.
Table 44.1: OLS house price regression via gretl
const 129.062 88.3033 1.4616 0.1746

sqft 0.154800 0.0319404 4.8465 0.0007
bedrms −21.587 27.0293 −0.7987 0.4430
baths −12.192 43.2500 −0.2819 0.7838
1 R’shomepage is at http://www.r-project.org/.
2 OK, who are we kidding? But it’s friendly competition!
3 The main reference for R documentation is http://cran.r-project.org/manuals.html. In addition, R tutorials
abound on the Net; as always, Google is your friend.
427
Chapter 44. Gretl and R 428
We will now replicate the above results using R. Select the menu item “Tools, Start GNU R”. A
window similar to the one shown in figure 44.1 should appear.
Figure 44.1: R window
The actual look of the R window may be somewhat different from what you see in Figure 44.1
(especially for Windows users), but this is immaterial. The important point is that you have a
window where you can type commands to R. If the above procedure doesn’t work and no R window
opens, it means that gretl was unable to launch R. You should ensure that R is installed and working
on your system and that gretl knows where it is. The relevant settings can be found by selecting
the “Tools, Preferences, General” menu entry, under the “Programs” tab.
Assuming R was launched successfully, you will see notification that the data from gretl are avail-
able. In the background, gretl has arranged for two R commands to be executed, one to load the
gretl dataset in the form of a data frame (one of several forms in which R can store data) and one
to attach the data so that the variable names defined in the gretl workspace are available as valid
identifiers within R.
In order to replicate gretl’s OLS estimation, go into the R window and type at the prompt
model <- lm(price ~ sqft + bedrms + baths)

summary(model)
You should see something similar to Figure 44.2. Surprise — the estimates coincide! To get out, just
close the R window or type q() at the R prompt.
Time series data

We now turn to an example which uses time series data: we will compare gretl’s and R’s estimates
of Box and Jenkins’ immortal “airline” model. The data are contained in the bjg sample dataset.
The following gretl code
open bjg
arima 0 1 1 ; 0 1 1 ; lg --nc
produces the estimates shown in Table 44.2.

Figure 44.2: OLS regression on house prices via R
Table 44.2: Airline model from Box and Jenkins (1976) – selected portion of gretl’s estimates
θ1 −0.401824 0.0896421 −4.4825 0.0000

Θ1 −0.556936 0.0731044 −7.6184 0.0000
Variance of innovations 0.00134810
Log-likelihood 244.696
Akaike information criterion −483.39
If we now open an R session as described in the previous subsection, the data-passing mechanism
is slightly different. Since our data were defined in gretl as time series, we use an R time-series
object (ts for short) for the transfer. In this way we can retain in R useful information such as the
periodicity of the data and the sample limits. The downside is that the names of individual series,
as defined in gretl, are not valid identifiers. In order to extract the variable lg, one needs to use the
syntax lg <- gretldata[, "lg"].
ARIMA estimation can be carried out by issuing the following two R commands:
lg <- gretldata[, "lg"]

arima(lg, c(0,1,1), seasonal=c(0,1,1))
which yield
Coefficients:
ma1 sma1
-0.4018 -0.5569
s.e. 0.0896 0.0731
sigma^2 estimated as 0.001348: log likelihood = 244.7, aic = -483.4
Happily, the estimates again coincide.
44.3 Running an R script

Opening an R window and keying in commands is a convenient method when the job is small. In
some cases, however, it would be preferable to have R execute a script prepared in advance. One
way to do this is via the source() command in R. Alternatively, gretl offers the facility to edit an R
script and run it, having the current dataset pre-loaded automatically. This feature can be accessed
via the “File, Script Files” menu entry. By selecting “User file”, one can load a pre-existing R script;
if you want to create a new script instead, select the “New script, R script” menu entry.
Figure 44.3: Editing window for R scripts
In either case, you are presented with a window very similar to the editor window used for ordinary
gretl scripts, as in Figure 44.3.
There are two main differences. First, you get syntax highlighting for R’s syntax instead of gretl’s.
Second, clicking on the Execute button (the gears icon), launches an instance of R in which your
commands are executed. Before R is actually run, you are asked if you want to run R interactively
or not (see Figure 44.4).
An interactive run opens an R instance similar to the one seen in the previous section: your data
will be pre-loaded (if the “pre-load data” box is checked) and your commands will be executed.
Once this is done, you will find yourself at the R prompt, where you can enter more commands.
Figure 44.4: Editing window for R scripts
A non-interactive run, on the other hand, will execute your script, collect the output from R and
present it to you in an output window; R will be run in the background. If, for example, the script
in Figure 44.3 is run non-interactively, a window similar to Figure 44.5 will appear.
Figure 44.5: Output from a non-interactive R run
44.4 Taking stuff back and forth

As regards the passing of data between the two programs, so far we have only considered passing
series from gretl to R. In order to achieve a satisfactory degree of interoperability, more is needed.
In the following sub-sections we see how matrices can be exchanged, and how data can be passed
from R back to gretl.
Passing matrices from gretl to R

For passing matrices from gretl to R, you can use the mwrite matrix function described in section
17.7. For example, the following gretl code fragment generates the matrix
 
3 7 11
 4 8 12 
 
A=
 5

 9 13 

6 10 14
and stores it into the file mymatfile.mat in the user’s “dotdir”(see section 15.2). Note that writing
to this special directory, which is sure to exist and be writable by the user, is mandated by the
non-zero value for the third, optional argument to mwrite.
matrix A = mshape(seq(3,14),4,3)
err = mwrite(A, "mymatfile.mat", 1)
The recommended R code to import such a matrix is
A <- gretl.loadmat("mymatfile.mat")
The function gretl.loadmat, which is predefined when R is called from gretl, retrieves the matrix
from dotdir. (The “.mat” extension for gretl matrix files is not compulsory; you can name these
files as you wish.)
It’s also possible to take more control over the details of the transfer if you wish. You have the
built-in string variable $dotdir in gretl, while in R you have the same variable under the name
gretl.dotdir. To use a location other than $dotdir you may (a) omit the third argument to
mwrite and supply a full path to the matrix file, and (b) use a more generic approach to reading
the file in R. Here’s an example:
Gretl side:
mwrite(A, "/path/to/mymatfile.mat")
R side:
A <- as.matrix(read.table("/path/to/mymatfile.mat", skip=1))
Passing data from R to gretl

For passing data in the opposite direction, gretl defines a special function that can be used in the
R environment. An R object will be written as a temporary file in $dotdir, from where it can be
easily retrieved from within gretl.
The name of this function is gretl.export(); it takes one required argument, the object to be
exported. At present, the objects that can be exported with this method are matrices, data frames
and time-series objects. The function creates a text file, by default with the same name as the
exported object (plus an appropriate suffix), in gretl’s temporary directory. Data frames and time-
series objects are stored as CSV files, and can be retrieved by using gretl’s append command.
Matrices are stored in a special text format that is understood by gretl (see section 17.7); the file
suffix is in this case .mat, and to read the matrix in gretl you must use the mread() function.
This function also has an optional second argument, namely a string which specifies a basename
for the export file, in case you want to use a name other than that attached to the object within R.
As in the default case an appropriate suffix, .csv or .mat, will be added to the basename.
As an example, we take the airline data and use them to estimate a structural time series model à
la Harvey (1989).4 The model we will use is the Basic Structural Model (BSM), in which a time series
is decomposed into three terms:
yt = µt + γt + εt
where µt is a trend component, γt is a seasonal component and εt is a noise term. In turn, the
following is assumed to hold:
∆µt = βt−1 + ηt
∆βt = ζt
∆s γt = ∆ωt
where ∆s is the seasonal differencing operator, (1 − Ls ), and ηt , ζt and ωt are mutually uncorre-
lated white noise processes. The object of the analysis is to estimate the variances of the noise
components (which may be zero) and to recover estimates of the latent processes µt (the “level”),
βt (the “slope”) and γt .
We will use R’s StructTS command and import the results back into gretl. Once the bjg dataset is
loaded in gretl, we pass the data to R and execute the following script:
# extract the log series

y <- gretldata[, "lg"]
# estimate the model
strmod <- StructTS(y)
# save the fitted components (smoothed)
compon <- as.ts(tsSmooth(strmod))
# save the estimated variances
vars <- as.matrix(strmod$coef)
# export into gretl’s temp dir

gretl.export(compon)
gretl.export(vars)
Running this script via gretl produces minimal output:
current data loaded as ts object "gretldata"

wrote /home/cottrell/.gretl/compon.csv
wrote /home/cottrell/.gretl/vars.mat
However, we are now able to pull the results back into gretl by executing the following commands,
either from the console or by creating a small script:
string fname = sprintf("%s/compon.csv", $dotdir)

append @fname
vars = mread("vars.mat", 1)
The first command reads the estimated time-series components from a CSV file, which is the format
that the passing mechanism employs for series. The matrix vars is read from the file vars.mat.
After the above commands have been executed, three new series will have appeared in the gretl
workspace, namely the estimates of the three components; by plotting them together with the
original data, you should get a graph similar to Figure 44.6. The estimates of the variances can be
seen by printing the vars matrix, as in
? print vars
vars (4 x 1)
4 The function package StucTiSM is available to handle this class of models natively in gretl.
lg level
6.6 6.2
6.4 6
6.2
5.8
6
5.8 5.6
5.6 5.4
5.4 5.2
5.2
5
5
4.8 4.8
4.6 4.6
1949 1955 1961 1949 1955 1961
slope sea
0.01025 0.3
0.25
0.0102 0.2
0.15
0.01015 0.1
0.05
0
0.0101 -0.05
-0.1
0.01005 -0.15
-0.2
0.01 -0.25
1949 1955 1961 1949 1955 1961
Figure 44.6: Estimated components from BSM
0.00077185
0.0000
0.0013969
0.0000
That is,
σ̂η2 = 0.00077185, σ̂ζ2 = 0, 2
σ̂ω = 0.0013969, σ̂ε2 = 0
Notice that, since σ̂ζ2 = 0, the estimate for βt is constant and the level component is simply a
random walk with a drift.
44.5 Interacting with R from the command line

Up to this point we have spoken only of interaction with R via the GUI program. In order to do the
same from the command line interface, gretl provides the foreign command. This enables you to
embed non-native commands within a gretl script.
A “foreign” block takes the form
foreign language=R [--send-data[=list]] [--quiet]

... R commands ...
end foreign
and achieves the same effect as submitting the enclosed R commands via the GUI in the non-
interactive mode (see section 44.3 above). The --send-data option arranges for auto-loading of
the data present in the gretl session, or a subset thereof specified via a named list. The --quiet
option prevents the output from R from being echoed in the gretl output.
Using this method, replicating the example in the previous subsection is rather easy: basically,
all it takes is encapsulating the content of the R script in a foreign. . . end foreign block; see
Listing 44.1.
Listing 44.1: Estimation of the Basic Structural Model – simple [Download ▼]
open bjg.gdt
foreign language=R --send-data

y <- gretldata[, "lg"]
strmod <- StructTS(y)
vars <- as.matrix(strmod$coef)
gretl.export(vars)
end foreign
append @dotdir/compon.csv
rename level lg_level
rename slope lg_slope
rename sea lg_seas
vars = mread("vars.mat", 1)
The above syntax, despite being already quite useful by itself, shows its full power when it is used
in conjunction with user-written functions. Listing 44.2 shows how to define a gretl function that
calls R internally.
Listing 44.2: Estimation of the Basic Structural Model – via a function [Download ▼]
function list RStructTS(series myseries)

smpl ok(myseries) --restrict
sx = argname(myseries)
foreign language=R --send-data --quiet

@sx <- gretldata[, "myseries"]
strmod <- StructTS(@sx)
end foreign
append @dotdir/compon.csv
rename level @sx_level
rename slope @sx_slope
rename sea @sx_seas
list ret = @sx_level @sx_slope @sx_seas

return ret
end function
# ------------ main -------------------------
open bjg.gdt
list X = RStructTS(lg)
44.6 Performance issues with R

R is a large and complex program, which takes an appreciable time to initialize itself. In interactive
use this not a significant problem, but if you have a gretl script that calls R repeatedly the cumulated
start-up costs can become bothersome. To get around this, gretl calls the R shared library by
preference; in this case the start-up cost is borne only once, on the first invocation of R code from
within gretl.
Support for the R shared library is built into the gretl packages for MS Windows and OS X — but
the advantage is realized only if the library is in fact available at run time. If you are building gretl
yourself on Linux and wish to make use of the R library, you should ensure (a) that R has been
built with the shared library enabled (specify --enable-R-shlib when configuring your build of
R), and (b) that the pkg-config program is able to detect your R installation. We do not link to the
R library at build time, rather we open it dynamically on demand. The gretl GUI has an item under
the Tools/Preferences menu which enables you to select the path to the library, if it is not detected
automatically.
If you have the R shared library installed but want to force gretl to call the R executable instead,
you can do
set R_lib off
44.7 Further use of the R library

Besides improving performance, as noted above, use of the R shared library makes possible a
further refinement. That is, you can define functions in R, within a foreign block, then call those
functions later in your script much as if they were gretl functions. This is illustrated below.
set R_functions on
foreign language=R
plus_one <- function(q) {
z = q+1
invisible(z)
}
end foreign
scalar b=R.plus_one(2)
The R function plus_one is obviously trivial in itself, but the example shows a couple of points.
First, for this mechanism to work you need to enable R_functions via the set command. Second,
to avoid collision with the gretl function namespace, calls to functions defined in this way must be
prefixed with “R.”, as in R.plus_one. (But please note, this mechanism will not work if you have
defined a gretl bundle named R: in that case identifiers beginning with “R.” will be understood as
referring to members of the bundle in question.)
Built-in R functions may also be called in this way, once R_functions is set on. For example one
can invoke R’s choose function, which computes binomial coefficients:
set R_functions on
scalar b = R.choose(10,4)
The use of R functions from within gretl is limited by the need for an unambiguous and lossless
mapping between R and gretl data-types (both for arguments passed by gretl and for return values
generated by R). So far, the following possibilities are supported (see chapter 11 for details on the
definition of types on the gretl side):
• The most basic types—real scalars, real matrices and (single) strings — can be pushed in either
direction no problem.
• A series in gretl can be pushed to R as a vector. If the gretl series is string-valued (see
chapter 16), R will receive the string values.
• Gretl’s arrays of strings can be pushed to R as vectors of strings, and vice versa.
• Gretl’s bundles can be pushed to R as “lists”, with tags naming the elements, and R’s lists can
be retrieved as gretl bundles provided that their elements have a corresponding gretl type
and are identified by tags. But this is subject to the restriction that a gretl bundle passed to R
cannot contain instances of the gretl list type (or arrays of anything other than strings).
Chapter 45
Gretl and Ox
45.1 Introduction
Ox, written by Jurgen A. Doornik (see Doornik, 2007), is described by its author as “an object-
oriented statistical system. At its core is a powerful matrix language, which is complemented by
a comprehensive statistical library. Among the special features of Ox are its speed [and] well-
designed syntax. . . . Ox comes in two versions: Ox Professional and Ox Console. Ox is available for
Windows, Linux, Mac (OS X), and several Unix platforms.” (www.doornik.com)
Ox is proprietary, closed-source software. The command-line version of the program is, however,
available free of change for academic users. Quoting again from Doornik’s website: “The Console
(command line) versions may be used freely for academic research and teaching purposes only. . . .
The Ox syntax is public, and, of course, you may do with your own Ox code whatever you wish.”
If you wish to use Ox in conjunction with gretl please refer to doornik.com for further details on
licensing.
As the reader will no doubt have noticed, most other software that we discuss in this Guide is open-
source and freely available for all users. We make an exception for Ox on the grounds that it is
indeed fast and well designed, and that its statistical library — along with various add-on packages
that are also available—has exceptional coverage of cutting-edge techniques in econometrics. The
gretl authors have used Ox for benchmarking some of gretl’s more advanced features such as
dynamic panel models and state space models.1
45.2 Ox support in gretl

The support offered for Ox in gretl is similar to that offered for R, as discussed in chapter 44.
☞ To enable support for Ox, go to the Tools/Preferences/General menu item and look under the Programs
tab. Find the entry for the path to the oxl executable, that is, the program that runs Ox files (on MS Windows
it is called oxl.exe). Adjust the path if it’s not already right for your system and you should be ready to go.
With support enabled, you can open and edit Ox programs in the gretl GUI. Clicking the “execute”
icon in the editor window will send your code to Ox for execution. Figures 45.1 and Figure 45.2
show an Ox program and part of its output.
In addition you can embed Ox code within a gretl script using a foreign block, as described in
connection with R. A trivial example, which simply prints the gretl data matrix within Ox, is shown
below:
open data4-1
matrix m = {dataset}
mwrite(m, "gretl.mat", 1)
foreign language=Ox
#include <oxstd.h>
main()
{
1 For a review of Ox, see Cribari-Neto and Zarkos (2003) and for a (somewhat dated) comparison of Ox with other
matrix-oriented packages such as GAUSS, see Steinhaus (1999).
438
Chapter 45. Gretl and Ox 439
Figure 45.1: Ox editing window
Figure 45.2: Output from Ox

decl gmat = gretl_loadmat("gretl.mat");

print(gmat);
}
end foreign
The above example illustrates how a matrix can be passed from gretl to Ox. We use the mwrite
function to write a matrix into the user’s “dotdir” (see section 15.2), then in Ox we use the function
gretl_loadmat to retrieve the matrix.
How does gretl_loadmat come to be defined? When gretl writes out the Ox program correspond-
ing to your foreign block it does two things in addition. First, it writes a small utility file named
gretl_io.ox into your dotdir. This contains a definition for gretl_loadmat and also for the
function gretl_export (see below). Second, gretl interpolates into your Ox code a line which in-
cludes this utility file (it is inserted right after the inclusion of oxstd.h, which is needed in all Ox
programs). Note that gretl_loadmat expects to find the named file in the user’s dotdir.
45.3 Illustration: replication of DPD model

Listing 45.1 shows a more ambitious case. This script replicates one of the dynamic panel data
models in Arellano and Bond (1991), first using gretl and then using Ox; we then check the relative
differences between the parameter estimates produced by the two programs (which turn out to be
reassuringly small).
Unlike the previous example, in this case we pass the dataset from gretl to Ox as a CSV file in
order to preserve the variable names. Note the use of the internal variable csv_na to get the right
representation of missing values for use with Ox— and also note that the --send-data option for
the foreign command is not available in connection with Ox.
We get the parameter estimates back from Ox using gretl_export on the Ox side and mread on
the gretl side. The gretl_export function takes two arguments, a matrix and a file name. The file
is written into the user’s dotdir, from where it can be picked up using mread. The final portion of
the output from Listing 45.1 is shown below:
? matrix oxparm = mread("oxparm.mat", 1)

Generated matrix oxparm
? eval abs((parm - oxparm) ./ oxparm)
1.4578e-13
3.5642e-13
5.0672e-15
1.6091e-13
8.9808e-15
2.0450e-14
1.0218e-13
2.1048e-13
9.5898e-15
1.8658e-14
2.1852e-14
2.9451e-13
1.9398e-13
Listing 45.1: Estimation of dynamic panel data model via gretl and Ox
open abdata.gdt
# 1-step GMM estimation

dpanel 2 ; n w w(-1) k ys ys(-1) 0 --time-dummies --dpdstyle
matrix parm = $coeff
# Write CSV file for Ox

set csv_na .NaN
store @dotdir/abdata.csv
# Replicate using the Ox DPD package

foreign language=Ox
#include <oxstd.h>
#import <packages/dpd/dpd>
main ()
{
decl dpd = new DPD();
dpd.Load("@dotdir/abdata.csv");
dpd.SetYear("YEAR");

dpd.Select(I_VAR, {"w", 0, 1, "k", 0, 0, "ys", 0, 1});
dpd.Gmm("n", 2, 99); // GMM-type instrument

dpd.SetTest(2, 2); // Sargan, AR 1-2 tests
dpd.Estimate(); // 1-step estimation
decl parm = dpd.GetPar();
gretl_export(parm, "oxparm.mat");
delete dpd;
}
end foreign
# Compare the results

matrix oxparm = mread("oxparm.mat", 1)
eval abs((parm - oxparm) ./ oxparm)
Chapter 46
Gretl and Octave
46.1 Introduction
GNU Octave, written by John W. Eaton and others, is described as “a high-level language, primar-
ily intended for numerical computations.” The program is oriented towards “solving linear and
nonlinear problems numerically” and “performing other numerical experiments using a language
that is mostly compatible with Matlab.” (www.gnu.org/software/octave) Octave is available in
source-code form (naturally, for GNU software) and also in the form of binary packages for MS Win-
dows and Mac OS X. Numerous contributed packages that extend Octave’s functionality in various
ways can be found at octave.sf.net.
46.2 Octave support in gretl

The support offered for Octave in gretl is similar to that offered for R (chapter 44). For example,
you can open and edit Octave scripts in the gretl GUI. Clicking the “execute” icon in the editor
window will send your code to Octave for execution. Figures 46.1 and Figure 46.2 show an Octave
script and its output; in this example we use the function logistic_regression to replicate some
results from Greene (2000).
In addition you can embed Octave code within a gretl script using a foreign block, as described
in connection with R. A trivial example is shown below: it simply loads and prints the gretl data
matrix within Octave, then takes it back to gretl and checks for any difference (there should be
none). (Note that in Octave, appending “;” to a line suppresses verbose output; leaving off the
semicolon results in printing of the object that is produced, if any.)
open data4-1
matrix m = {dataset}
mwrite(m, "gretl.mat", 1)
foreign language=Octave
gmat = gretl_loadmat("gretl.mat")
gretl_export(gmat, "octave.mat")
end foreign
matrix chk = mread("octave.mat", 1)

eval maxr(maxc(abs(m - chk)))
The functions gretl_loadmat and gretl_export, which are predefined when you run Octave from
within gretl, have the following signatures:
function A = gretl_loadmat(fname, autodot=1)
function gretl_export(X, fname, autodot=1)
By default traffic in matrices goes via the user’s “dotdir” (see section 15.2) on the Octave side;
that is, the name of this directory is prepended to filename for both reading and writing. (This
is complementary to use of the export and import parameters with gretl’s mwrite and mread
functions, respectively.) However, if you wish to take control over the reading and writing locations
442
Chapter 46. Gretl and Octave 443
Figure 46.1: Octave editing window
Figure 46.2: Output from Octave

you can supply a zero value for autodot (or give an absolute path) when calling gretl_loadmat
and gretl_export: in that case the filename argument is used as is.
46.3 Illustration: spectral methods

We now present a more ambitious example which exploits Octave’s handling of the frequency
domain (and also its ability to use code written for MATLAB), namely estimation of the spec-
tral coherence of two time series. For this illustration we require two extra Octave packages
from octave.sf.net, namely those supporting spectral functions (specfun) and signal process-
ing (signal). After downloading the packages you can install them from within Octave as follows
(using version numbers as of March 2010):
pkg install specfun-1.0.8.tar.gz

pkg install signal-1.0.10.tar.gz
In addition we need some specialized MATLAB files made available by Mario Forni of the Univer-
sity of Modena, at http://morgana.unimore.it/forni_mario/matlab.htm. The files needed are
coheren2.m, coheren.m, coher.m, cospec.m, crosscov.m, crosspec.m, crosspe.m and spec.m.
These are in a form appropriate for MS Windows. On Linux you could run the following shell script
to get the files and remove the Windows end-of-file character (which prevents the files from running
under Octave):
SITE=http://morgana.unimore.it/forni_mario/MYPROG
# download files and delete trailing Ctrl-Z
for f in \
coheren2.m \
coheren.m \
coher.m \
cospec.m \
crosscov.m \
crosspec.m \
crosspe.m \
spec.m ; do
wget $SITE/$f && \
cat $f | tr -d \\032 > tmp.m && mv tmp.m $f
done
The Forni files should be placed in some appropriate directory, and you should tell Octave where
to find them by adding that directory to Octave’s loadpath. On Linux this can be done via an entry
in one’s ~/.octaverc file. For example
addpath("~/stats/octave/forni");
Alternatively, an addpath directive can be written into the Octave script that calls on these files.
With everything set up on the Octave side we now write a gretl script (see Listing 46.1) which opens
a time-series dataset, constructs and writes a matrix containing two series, and defines a foreign
block containing the Octave statements needed to produce the spectral coherence matrix. This
matrix is exported via gretl_export and picked up using mread. Finally, we produce a graph from
the matrix in gretl. In the script this is sent to the screen; Figure 46.3 shows the same graph in PDF
format.
Listing 46.1: Estimation of spectral coherence via Octave
open data9-7
matrix xy = { PRIME, UNEMP }
mwrite(xy, "xy.mat", 1)
foreign language=Octave
pkg load signal
# uncomment and modify the following if necessary
# addpath("~/stats/octave/forni");
xy = gretl_loadmat("xy.mat");
x = xy(:,1);
y = xy(:,2);
# note: the last parameter is the Bartlett window size
h = coher(x, y, 8);
gretl_export(h, "h.mat");
end foreign
h = mread("h.mat", 1)
cnameset(h, "coherence")
gnuplot 1 --time-series --with-lines --matrix=h --output=display
0.4
0.3
0.2
0.1
coherence
-0.1
-0.2
-0.3
-0.4
-0.5
0 10 20 30 40 50 60
Figure 46.3: Spectral coherence estimated via Octave

Chapter 47
Gretl and Stata
Stata (www.stata.com) is closed-source, proprietary (and expensive) software and as such is not a
natural companion to gretl. Nonetheless, given Stata’s popularity it is desirable to have a convenient
way of comparing results across the two programs, and to that end we provide some support for
Stata code under the foreign command.
☞ To enable support for Stata, go to the Tools/Preferences/General menu item and look under the Programs
tab. Find the entry for the path to the Stata executable. Adjust the path if it’s not already right for your
system and you should be ready to go.
The following example illustrates what’s available. You can send the current gretl dataset to Stata
using the --send-data flag. And having defined a matrix within Stata you can export it for use with
gretl via the gretl_export command: this takes two arguments, the name of the matrix to export
and the filename to use; the file is written to the user’s “dotdir”, from where it can be retrieved
using the mread() function.1 To suppress printed output from Stata you can add the --quiet flag
to the foreign block.
Listing 47.1: Comparison of clustered standard errors with Stata [Download ▼]
function matrix stata_reorder (matrix se)

# stata puts the intercept last, but gretl puts it first
scalar n = rows(se)
return se[n] | se[1:n-1]
end function
open data4-1
ols 1 0 2 3 --cluster=bedrms
matrix se = $stderr
foreign language=stata --send-data

regress price sqft bedrms, vce(cluster bedrms)
matrix vcv = e(V)
gretl_export vcv "vcv.mat"
end foreign
matrix stata_vcv = mread("vcv.mat", 1)

stata_se = stata_reorder(sqrt(diag(stata_vcv)))
matrix check = se - stata_se
print check
In addition you can edit “pure” Stata scripts in the gretl GUI and send them for execution as with
native gretl scripts.
Note that Stata coerces all variable names to lower-case on data input, so even if series names in
1 We do not currently offer the complementary functionality of gretl_loadmat, which enables reading of matrices
written by gretl’s mwrite() function in Ox and Octave. This is not at all easy to implement in Stata code.
446
Chapter 47. Gretl and Stata 447
gretl are upper-case, or of mixed case, it’s necessary to use all lower-case in Stata. Also note that
when opening a data file within Stata via the use command it will be necessary to provide the full
path to the file.
Chapter 48
Gretl and Python
48.1 Introduction
According to www.python.org, Python is “an easy to learn, powerful programming language. It has
efficient high-level data structures and a simple but effective approach to object-oriented program-
ming. Python’s elegant syntax and dynamic typing, together with its interpreted nature, make it an
ideal language for scripting and rapid application development in many areas on most platforms.”
Indeed, Python is widely used in a great variety of contexts. Numerous add-on modules are avail-
able; the ones likely to be of greatest interest to econometricians include NumPy (“the fundamen-
tal package for scientific computing with Python” — see www.numpy.org); SciPy (which builds on
NumPy —see www.scipy.org); and Statsmodels (http://statsmodels.sourceforge.net/).
48.2 Python support in gretl

The support offered for Python in gretl is similar to that offered for Octave (chapter 46). You can
open and edit Python scripts in the gretl GUI. Clicking the “execute” icon in the editor window will
send your code to Python for execution. In addition you can embed Python code within a gretl
script using a foreign block, as described in connection with R.
When you launch Python from within gretl one variable and two convenience functions are pre-
defined, as follows.
gretl_dotdir
gretl_loadmat(filename, autodot=1)
gretl_export(M, filename, autodot=1)
The variable gretl_dotdir holds the path to the user’s “dot directory.” The first function loads a
matrix of the given filename as written by gretl’s mwrite function, and the second writes matrix
M, under the given filename, in the format wanted by gretl.
By default the traffic in matrices goes via the dot directory on the Python side; that is, the name of
this directory is prepended to filename for both reading and writing. (This is complementary to
use of the export and import parameters with gretl’s mwrite and mread functions, respectively.)
However, if you wish to take control over the reading and writing locations you can supply a zero
value for autodot (or give an absolute path) when calling gretl_loadmat and gretl_export: in
that case the filename argument is used as is.
Note that gretl_loadmat and gretl_export depend on NumPy; they make use of the functions
loadtxt and savetxt respectively. Nonetheless, the presence of NumPy is not an absolute require-
ment if you don’t need to use these two functions.
48.3 Illustration: linear regression with multicollinearity

Listing 48.1 compares the numerical accuracy of gretl’s ols command with that of the function
linalg.lstsq in NumPy, using the notorious Longley test data which exhibit extreme multi-
collinearity. Unlike some econometrics packages, NumPy does a good job on these data. The
script computes and prints the log-relative error in estimation of the regression coefficients, using
448
Chapter 48. Gretl and Python 449
the NIST-certified values as a benchmark;1 the error values correspond to the number of correct
digits (with a maximum of 15). The results will likely differ somewhat by computer architecture
and compiler.
Listing 48.1: Comparing regression results with Python [Download ▼]
set verbose off
function matrix logrel_err (const matrix est, const matrix true)

return -log10(abs(est - true) ./ abs(true))
end function
open longley.gdt -q
list LX = prdefl .. year
ols employ 0 LX -q
matrix b_gretl = $coeff
mwrite({employ} ~ {const} ~ {LX}, "alldata.mat", 1)
foreign language=python
import numpy as np
X = gretl_loadmat(’alldata.mat’, 1)
# NumPy’s OLS
b = np.linalg.lstsq(X[:,1:], X[:,0])[0]
gretl_export(np.transpose(np.matrix(b)), ’py_b.mat’, 1)
end foreign
# NIST’s certified coefficient values

matrix b_nist = {-3482258.63459582, 15.0618722713733,
-0.358191792925910E-01, -2.02022980381683,
-1.03322686717359, -0.511041056535807E-01,
1829.15146461355}’
matrix b_numpy = mread("py_b.mat", 1)

matrix E = logrel_err(b_gretl, b_nist) ~ logrel_err(b_numpy, b_nist)
cnameset(E, "gretl python")
printf "Log-relative errors, Longley coefficients:\n\n%#12.5g\n", E
printf "Column means\n%#12.5g\n", meanc(E)
Log-relative errors, Longley coefficients:
gretl python
12.844 12.850
11.528 11.414
12.393 12.401
13.135 13.121
13.738 13.318
12.587 12.363
12.848 12.852
Column means
12.725 12.617
1 See http://www.itl.nist.gov/div898/strd/lls/data/Longley.shtml.
Chapter 49
Gretl and Julia
49.1 Introduction
According to julialang.org, Julia is “a high-level, high-performance dynamic programming lan-
guage for technical computing, with syntax that is familiar to users of other technical computing
environments. It provides a sophisticated compiler, distributed parallel execution, numerical ac-
curacy, and an extensive mathematical function library.” Julia is well known for being very fast;
however, you should be aware that by default starting Julia takes some time due to Just-in-Time
compilation of the input. This fixed cost is well worth bearing if you are asking Julia to perform a
big computation, but small jobs are likely to run faster if you use the (Julia-specific) --no-compile
option with the foreign command.1
49.2 Julia support in gretl

The support offered for Julia in gretl is similar to that offered for Octave (chapter 46). You can
open and edit Julia scripts in the gretl GUI. Clicking the “execute” icon in the editor window will
send your code to Julia for execution. In addition you can embed Julia code within a gretl script
using a foreign block, as described in connection with R.
When you launch Julia from within gretl one variable and two convenience functions are pre-defined,
as follows.
gretl_dotdir
gretl_loadmat(filename, autodot=true)
gretl_export(M, filename, autodot=true)
The variable gretl_dotdir holds the path to the user’s “dot directory.” The first function loads a
matrix of the given filename as written by gretl’s mwrite function, and the second writes matrix
M, under the given filename, in the format wanted by gretl.
By default the traffic in matrices goes via the dot directory on the Julia side; that is, the name of
this directory is prepended to filename for both reading and writing. (This is complementary to
use of the export and import parameters with gretl’s mwrite and mread functions, respectively.)
However, if you wish to take control over the reading and writing locations you can supply a zero
value for autodot (or give an absolute path) when calling gretl_loadmat and gretl_export: in
that case the filename argument is used as is.
49.3 Illustration
Listing 49.1 shows a minimal example of how to interact with Julia from a gretl script.
Since this is a very small job JIT compilation is not worthwhile; in our testing the script runs almost
4 times faster if the Julia block is opened with
foreign language=julia --no-compile
This has the effect of passing the option --compile=no to the Julia executable.
1 Caveat: it seems that this option is not supported by all builds of Julia.
450
Chapter 49. Gretl and Julia 451
Listing 49.1: Simple Julia I/O example [Download ▼]
set verbose off
matrix A = mnormal(4,4) # generate a random matrix

mwrite(A, "A", 1) # and save it to a file
foreign language=julia # call Julia

print("Hi from Julia!\n"); # output a string
A = gretl_loadmat("A"); # grab the matrix from gretl
gretl_export(inv(A), "iA.mat"); # and save its inverse
end foreign # go back to gretl
matrix iA = mread("iA.mat", 1) # read the inverse from Julia

matrix check = A * iA # compute the product
print check # print out the check (should be I)
Output (good approximation to identity matrix):

Hi from Julia!
check (4 x 4)
1.0000 6.9389e-18 1.6653e-16 1.6653e-16

0.0000 1.0000 0.0000 0.0000
-4.4409e-16 -8.3267e-17 1.0000 -6.6613e-16
-4.4409e-16 -1.3878e-17 -1.1102e-16 1.0000
Chapter 50
Troubleshooting gretl
50.1 Bug reports

Bug reports are welcome—well, if not exactly welcome then useful and appreciated. Hopefully, you
are unlikely to find bugs in the actual calculations done by gretl (although this statement does not
constitute any sort of warranty). You may, however, come across bugs or oddities in the behavior
of the graphical interface. Please remember that the usefulness of bug reports is greatly enhanced
if you can be as specific as possible: what exactly went wrong, under what conditions, and on what
operating system? If you saw an error message, what precisely did it say?
One way of making a bug report more useful is to run the program in such a way that you can see
(and copy) any additional information that gets printed to the stderr output stream. On Linux and
Mac OS X that’s just a matter of launching gretl from the command prompt in a terminal window.
On MS Windows it’s a bit more complicated since stderr is by default “invisble.” However, you can
quite easily set up a special gretl shortcut that does the job. On the Windows desktop, right-click
and select “New shortcut.” In the dialog box that appears, browse to find gretl.exe and append
the --debug flag, as shown in Figure 50.1. Note that there are two dashes before “debug”.
Figure 50.1: Creating a debugging shortcut
452
Chapter 50. Troubleshooting gretl 453
When you start gretl in this mode, a “console window” appears as well as the gretl window, and
stderr output goes to the console. To copy this output, click at the top left of the console window
for a menu (Figure 50.2): first do “Select all”, then “Copy.” You can paste the results into Notepad
or similar.
Figure 50.2: The program with console window
50.2 Auxiliary programs

As mentioned above, gretl calls some other programs to accomplish certain tasks (gnuplot for
graphing, LATEX for high-quality typesetting of regression output, GNU R). If something goes wrong
with such external links, it is not always easy for gretl to produce an informative error message.
If such a link fails when accessed from the gretl graphical interface, you may be able to get more
information by starting gretl from the command prompt rather than via a desktop menu entry or
icon. On the X window system, start gretl from the shell prompt in an xterm; on MS Windows, start
the program gretl.exe from a console window or “DOS box” using the -g or --debug option flag.
Additional error messages may be displayed on the terminal window.
Also please note that for most external calls, gretl assumes that the programs in question are
available in your “path”—that is, that they can be invoked simply via the name of the program,
without supplying the program’s full location.1 Thus if a given program fails, try the experiment of
typing the program name at the command prompt, as shown below.
Graphing Typesetting GNU R

X window system gnuplot pdflatex R
MS Windows wgnuplot.exe pdflatex RGui.exe
If the program fails to start from the prompt, it’s not a gretl issue but rather that the program’s
home directory is not in your path, or the program is not installed (properly). For details on
modifying your path please see the documentation or online help for your operating system or
shell.
1 The exception to this rule is the invocation of gnuplot under MS Windows, where a full path to the program is given.
Chapter 51
The command line interface
The gretl package includes the command-line program gretlcli. On Linux it can be run from a
terminal window (xterm, rxvt, or similar), or at the text console. Under MS Windows it can be run in
a console window (sometimes inaccurately called a “DOS box”). gretlcli has its own help file, which
may be accessed by typing “help” at the prompt. It can be run in batch mode, sending output
directly to a file (see also the Gretl Command Reference).
If gretlcli is linked to the readline library (this is automatically the case in the MS Windows version;
also see Appendix B), the command line is recallable and editable, and offers command completion.
You can use the Up and Down arrow keys to cycle through previously typed commands. On a given
command line, you can use the arrow keys to move around, in conjunction with Emacs editing
keystrokes.1 The most common of these are:
Keystroke Effect
Ctrl-a go to start of line
Ctrl-e go to end of line
Ctrl-d delete character to right
where “Ctrl-a” means press the “a” key while the “Ctrl” key is also depressed. Thus if you want
to change something at the beginning of a command, you don’t have to backspace over the whole
line, erasing as you go. Just hop to the start and add or delete characters. If you type the first
letters of a command name then press the Tab key, readline will attempt to complete the command
name for you. If there’s a unique completion it will be put in place automatically. If there’s more
than one completion, pressing Tab a second time brings up a list.
Probably the most useful mode for heavy-duty work with gretlcli is batch (non-interactive) mode,
in which the program reads and processes a script, and sends the output to file. For example
gretlcli -b scriptfile > outputfile
Note that scriptfile is treated as a program argument; only the output file requires redirection (>).
Don’t forget the -b (batch) switch, otherwise the program will wait for user input after executing
the script (and if output is redirected, the program will appear to “hang”).
1 Actually, the key bindings shown below are only the defaults; they can be customized. See the readline manual.
454
Part IV
Appendices
455
Appendix A
Data file details
A.1 Basic native format

In gretl’s basic native data format–for which we use the suffix gdt— a data set is stored in XML
(extensible mark-up language). Data files correspond to the simple DTD (document type defini-
tion) given in gretldata.dtd, which is supplied with the gretl distribution and is installed in the
system data directory (e.g. /usr/share/gretl/data on Linux.) Such files may be plain text (un-
compressed) or gzipped. They contain the actual data values plus additional information such as
the names and descriptions of variables, the frequency of the data, and so on.
In a gdt file the actual data values are written to 17 significant figures (for generated data such as
logs or pseudo-random numbers) or to a maximum of 15 figures for primary data. The C printf
format “%.*g” is used (for * = 17 or 15) so that trailing zeros are not printed.
Most users will probably not have need to read or write such files other than via gretl itself, but
if you want to manipulate them using other software tools you should examine the DTD and also
take a look at a few of the supplied practice data files: data4-1.gdt gives a simple example;
data4-10.gdt is an example where observation labels are included.
A.2 Binary data file format

As of gretl 1.9.15, an alternative, binary format is available for data storage. Files of this sort have
suffix gdtb, and they take the form of a PKZIP archive containing two files, data.xml and data.bin,
with the following characteristics.
• data.xml is an XML file conforming to the gretldata DTD mentioned above, holding all the
metadata.
• data.bin starts with a header composed of one of the strings

gretl-bin:little-endian or
gretl-bin:big-endian
padded to 24 bytes with nul characters. This is followed by a binary dump of the data series,
by variable, as double-precision floating-point values.
Binary values are saved in the endianness of the machine on which they’re written; the header
information enables gretl to convert to the endianness of the host on which the data are read if
need be.
The rationale for introducing the binary gdtb format is that for very large datasets it is a lot faster
to write and read data in this form rather than as text. For small to moderately sized datasets
(say, up to 10 megabytes or so) there is no appreciable advantage in the binary format and we
recommend use of plain gdt.
Some illustrative timings are shown in Table A.1; these were obtained on a Lenovo ThinkPad X1 Car-
bon running gretl 1.9.15. The datasets contained a mixture of random normal series and random
binary (dummy) series. The largest comprised 50000 observations on 1000 series and the smallest
5000 observations on 250 series. As can be seen, there is a big time saving from the binary for-
mat when writing (and to a lesser extent, when reading) a dataset in the hundreds of megabytes
456
Appendix A. Data file details 457
range. At a size of around 10 megabytes, however, gdt files can be both written and read in under
a second, surely fast enough for most purposes.
381 MB 38 MB 19 MB 10 MB
format write read write read write read write read
gdt 21.76 4.91 2.20 0.48 1.19 0.32 0.59 0.16
gdtb 3.82 1.10 0.39 0.11 0.25 0.06 0.13 0.03
Table A.1: Data write and read timings in seconds for datasets of various sizes in megabytes. The MB
numbers represent the size of the datasets in memory; files of both formats are substantially smaller when
compression is applied.
A.3 Native database format

A gretl database consists of two parts: an ASCII index file (with filename suffix .idx) containing
information on the series, and a binary file (suffix .bin) containing the actual data. Two examples
of the format for an entry in the idx file are shown below:
G0M910 Composite index of 11 leading indicators (1987=100)

M 1948.01 - 1995.11 n = 575
currbal Balance of Payments: Balance on Current Account; SA
Q 1960.1 - 1999.4 n = 160
The first field is the series name. The second is a description of the series (maximum 128 charac-
ters). On the second line the first field is a frequency code: M for monthly, Q for quarterly, A for
annual, B for business-daily (daily with five days per week), D for 7-day daily, S for 6-day daily, U
for undated.
No other frequencies are accepted at present. Then comes the starting date (N.B. with two digits
following the point for monthly data, one for quarterly data, none for annual), a space, a hyphen,
another space, the ending date, the string “n = ” and the integer number of observations. In the
case of daily data the starting and ending dates should be given in the form YYYY-MM-DD. This
format must be respected exactly.
Optionally, the first line of the index file may contain a short comment (up to 64 characters) on the
source and nature of the data, following a hash mark. For example:
# Federal Reserve Board (interest rates)
The corresponding binary database file holds the data values, represented as “floats”, that is, single-
precision floating-point numbers, typically taking four bytes apiece. The numbers are packed “by
variable”, so that the first n numbers are the observations of variable 1, the next m the observations
on variable 2, and so on.
Appendix B
Building gretl
Here we give instructions detailed enough to allow a user with only a basic knowledge of a Unix-
type system to build gretl. These steps were tested on a fresh installation of Debian Etch. For other
Linux distributions (especially Debian-based ones, like Ubuntu and its derivatives) little should
change. Other Unix-like operating systems such as Mac OS X and BSD would probably require more
substantial adjustments.
In this guided example, we will build gretl complete with documentation. This introduces a few
more requirements, but gives you the ability to modify the documentation files as well, like the
help files or the manuals.
B.1 Installing the prerequisites

We assume that the basic GNU utilities are already installed on the system, together with these
other programs:
• some TEX/LATEXsystem (texlive will do beautifully)
• Gnuplot
• ImageMagick
We also assume that the user has administrative privileges and knows how to install packages. The
examples below are carried out using the apt-get shell command, but they can be performed with
menu-based utilities like aptitude, dselect or the GUI-based program synaptic. Users of Linux
distributions which employ rpm packages (e.g. Red Hat/Fedora, Mandriva, SuSE) may want to refer
to the dependencies page on the gretl website.
The first step is installing the C compiler and related basic utilities, if these are not already in place.
On a Debian (or derivative) system, these are contained in a bunch of packages that can be installed
via the command
apt-get install gcc autoconf automake1.9 libtool flex bison gcc-doc \

libc6-dev libc-dev gfortran gettext pkgconfig
Then it is necessary to install the “development” (dev) packages for the libraries that gretl uses:
458
Appendix B. Building gretl 459
Library command
GLIB apt-get install libglib2.0-dev
GTK 3.0 apt-get install libgtk3.0-dev
PNG apt-get install libpng12-dev
XSLT apt-get install libxslt1-dev
LAPACK apt-get install liblapack-dev
FFTW apt-get install libfftw3-dev
READLINE apt-get install libreadline-dev
ZLIB apt-get install zlib1g-dev
XML apt-get install libxml2-dev
GMP apt-get install libgmp-dev
CURL apt-get install libcurl4-gnutls-dev
MPFR apt-get install libmpfr-dev
It is possible to substitute GTK 2.0 for GTK 3.0. The dev packages for these libraries are necessary
to compile gretl—you’ll also need the plain, non-dev library packages to run gretl, but most of
these should already be part of a standard installation. In order to enable other optional features,
like audio support, you may need to install more libraries.
☞ The above steps can be much simplified on Linux systems that provide deb-based package managers,
such as Debian and its derivatives (Ubuntu, Knoppix and other distributions). The command
apt-get build-dep gretl
will download and install all the necessary packages for building the version of gretl that is currently present
in your APT sources. Technically, this does not guarantee that all the software necessary to build the git
version is included, because the version of gretl on your repository may be quite old and build requirements
may have changed in the meantime. However, the chances of a mismatch are rather remote for a reasonably
up-to-date system, so in most cases the above command should take care of everything correctly.
B.2 Getting the source: release or git

At this point, it is possible to build from the source. You have two options here: obtain the
latest released source package, or retrieve the current git version of gretl (git = the version control
software currently in use for gretl). The usual caveat applies to the git version, namely, that it may
not build correctly and may contain “experimental” code; on the other hand, git often contains
bug-fixes relative to the released version. If you want to help with testing and to contribute bug
reports, we recommend using git gretl.
To work with the released source:
1. Download the gretl source package from gretl.sourceforge.net.
2. Unzip and untar the package. On a system with the GNU utilities available, the command
would be tar xvfJ gretl-N.tar.xz (replace N with the specific version number of the file
you downloaded at step 1).
3. Change directory to the gretl source directory created at step 2 (e.g. gretl-2020a).
4. Proceed to the next section, “Configure and make”.
To work with git you’ll first need to install the git client program if it’s not already on your sys-
tem. Relevant resources you may wish to consult include the main git website at git-scm.com and
instructions specific to gretl: gretl git basics.
When grabbing the git sources for the first time, you should first decide where you want to store
the code. For example, you might create a directory called git under your home directory. Open a
terminal window, cd into this directory, and type the following commands:
git clone git://git.code.sf.net/p/gretl/git gretl-git
At this point git should create a subdirectory named gretl-git and fill it with the current sources.
When you want to update the source, this is very simple: just move into the gretl-git directory
and type
git pull
Assuming you’re now in the gretl-git directory, you can proceed in the same manner as with the
released source package.
B.3 Configure the source

The next command you need is ./configure; this is a complex script that detects which tools you
have on your system and sets things up. The configure command accepts many options; you may
want to run
./configure --help
first to see what options are available. One option you way wish to tweak is --prefix. By default
the installation goes under /usr/local but you can change this. For example
./configure --prefix=/usr
will put everything under the /usr tree.

Note that the recommended location to build gretl is not in the source directory. The way to achieve
that is quite simple: the invocation of the configure script has to take into account the relative path
to the source tree. So if your build directory is inside (underneath) the source tree it is
../configure
while if it is in a parallel tree it would be (something like):
../gretl-git/configure
If you have a multi-core machine you may want to activate support for OpenMP, which permits the
parallelization of matrix multiplication and some other tasks. This requires adding the configure
flag
--enable-openmp
By default the gretl GUI is built using version 3.0 of the GTK library, if available, otherwise version
2.0. If you have both versions installed and prefer to use GTK 2.0, use the flag
--enable-gtk2
In order to have the documentation built, we need to pass the relevant option to configure, as in
--enable-build-doc
But please note that this option will work only if you are using the git source.
☞ In order to build the documentation, there is the possibility that you will have to install some extra software
on top of the packages mentioned in the previous section. For example, you may need some extra LATEX
packages to compile the manuals. Two of the required packages, that not every standard LATEX installation
include, are typically pifont.sty and appendix.sty. You could install the corresponding packages from your
distribution or you could simply download them from CTAN and install them by hand.
This, for example, if you want to install under /usr, with OpenMP support, and also build the
documentation, you would do
./configure --prefix=/usr \
--enable-openmp \
--enable-build-doc
You will see a number of checks being run, and if everything goes according to plan, you should
see a summary similar to that displayed in Listing B.1.
Listing B.1: Sample output from ./configure
Configuration:
Installation path: /usr

Use readline library: yes
Use gnuplot for graphs: yes
Use LaTeX for typesetting output: yes
Use libgsf for zip/unzip: no
sse2 support for RNG: yes
OpenMP support: yes
MPI support: no
AVX support for arithmetic: no
Build with GTK version: 2.0
Build gretl documentation: yes
Use Lucida fonts: no
Build message catalogs: yes
X-12-ARIMA support: yes
TRAMO/SEATS support: yes
libR support: yes
ODBC support: no
Experimental audio support: no
Use xdg-utils in installation: if DESTDIR not set
LAPACK libraries:
-llapack -lblas -lgfortran
Now type ’make’ to build gretl.

You can also do ’make pdfdocs’ to build the PDF documentation.
☞ If you’re using git, it’s a good idea to re-run the configure script after doing an update. This is not always
necessary, but sometimes it is, and it never does any harm. For this purpose, you may want to write a little
shell script that calls configure with any options you want to use.
B.4 Build and install

We are now ready to undertake the compilation proper: this is done by running the make command,
which takes care of compiling all the necessary source files in the correct order. All you need to do
is type
make
This step will likely take several minutes to complete; a lot of output will be produced on screen.
Once this is done, you can install your freshly baked copy of gretl on your system via
make install
On most systems, the make install command requires you to have administrative privileges.
Hence, either you log in as root before launching make install or you may want to use the sudo
utility, as in:
sudo make install
Now try if everything works: go back to your home directory and run gretl
cd ~
gretl &
If all is well, you ought to see gretl start, at which point just exit the program in the usual way. On
the other hand, there is the possibility that gretl doesn’t start and instead you see a message like
/usr/local/bin/gretl_x11: error while loading shared libraries:

libgretl-1.0.so.0: cannot open shared object file: No such file or directory
In this case, just run
sudo ldconfig
The problem should be fixed once and for all.

Appendix C
Numerical accuracy
Gretl uses double-precision arithmetic throughout — except for the multiple-precision plugin in-
voked by the menu item “Model, Other linear models, High precision OLS” which represents floating-
point values using a number of bits given by the environment variable GRETL_MP_BITS (default
value 256).
The normal equations of Least Squares are by default solved via Cholesky decomposition, which
is highly accurate provided the matrix of cross-products of the regressors, X ′ X, is not very ill
conditioned. If this problem is detected, gretl automatically switches to use QR decomposition.
The program has been tested rather thoroughly on the statistical reference datasets provided by
NIST (the U.S. National Institute of Standards and Technology) and a full account of the results may
be found on the gretl website (follow the link “Numerical accuracy”).
To date, two published reviews have discussed gretl’s accuracy: Giovanni Baiocchi and Walter Dis-
taso (2003), and Talha Yalta and Yasemin Yalta (2007). We are grateful to these authors for their
careful examination of the program. Their comments have prompted several modifications includ-
ing the use of Stephen Moshier’s cephes code for computing p-values and other quantities relating
to probability distributions (see netlib.org), changes to the formatting of regression output to en-
sure that the program displays a consistent number of significant digits, and attention to compiler
issues in producing the MS Windows version of gretl (which at one time was slighly less accurate
than the Linux version).
Gretl now includes a “plugin” that runs the NIST linear regression test suite. You can find this
under the “Tools” menu in the main window. When you run this test, the introductory text explains
the expected result. If you run this test and see anything other than the expected result, please
send a bug report to [email protected].
All regression statistics are printed to 6 significant figures in the current version of gretl (except
when the multiple-precision plugin is used, in which case results are given to 12 figures). If you
want to examine a particular value more closely, first save it (for example, using the genr command)
then print it using printf, to as many digits as you like (see the Gretl Command Reference).
463
Appendix D
Related free software
Gretl’s capabilities are substantial, and are expanding. Nonetheless you may find there are some
things you can’t do in gretl, or you may wish to compare results with other programs. If you are
looking for complementary functionality in the realm of free, open-source software we recommend
the following programs. The self-description of each program is taken from its website.
• GNU R r-project.org: “R is a system for statistical computation and graphics. It consists of

a language plus a run-time environment with graphics, a debugger, access to certain system
functions, and the ability to run programs stored in script files. . . It compiles and runs on a
wide variety of UNIX platforms, Windows and MacOS.” Comment: There are numerous add-on
packages for R covering most areas of statistical work.
• GNU Octave www.octave.org: “GNU Octave is a high-level language, primarily intended for
numerical computations. It provides a convenient command line interface for solving linear
and nonlinear problems numerically, and for performing other numerical experiments using
a language that is mostly compatible with Matlab. It may also be used as a batch-oriented
language.”
• Julia julialang.org: “Julia is a high-level, high-performance dynamic programming language

for technical computing, with syntax that is familiar to users of other technical computing
environments. It provides a sophisticated compiler, distributed parallel execution, numerical
accuracy, and an extensive mathematical function library.”
• JMulTi www.jmulti.de: “JMulTi was originally designed as a tool for certain econometric pro-
cedures in time series analysis that are especially difficult to use and that are not available
in other packages, like Impulse Response Analysis with bootstrapped confidence intervals for
VAR/VEC modelling. Now many other features have been integrated as well to make it possi-
ble to convey a comprehensive analysis.” Comment: JMulTi is a java GUI program: you need
a java run-time environment to make use of it.
As mentioned above, gretl offers the facility of exporting data in the formats of both Octave and
R. In the case of Octave, the gretl data set is saved as a single matrix, X. You can pull the X matrix
apart if you wish, once the data are loaded in Octave; see the Octave manual for details. As for R,
the exported data file preserves any time series structure that is apparent to gretl. The series are
saved as individual structures. The data should be brought into R using the source() command.
In addition, gretl has a convenience function for moving data quickly into R. Under gretl’s “Tools”
menu, you will find the entry “Start GNU R”. This writes out an R version of the current gretl
data set (in the user’s gretl directory), and sources it into a new R session. The particular way
R is invoked depends on the internal gretl variable Rcommand, whose value may be set under the
“Tools, Preferences” menu. The default command is RGui.exe under MS Windows. Under X it is
xterm -e R. Please note that at most three space-separated elements in this command string will
be processed; any extra elements are ignored.
464
Appendix E
Listing of URLs
Below is a listing of the full URLs of websites mentioned in the text.
Estima (RATS) http://www.estima.com/
FFTW3 http://www.fftw.org/
Gnome desktop homepage http://www.gnome.org/
GNU Multiple Precision (GMP) library http://gmplib.org/
CURL library http://curl.haxx.se/libcurl/
GNU Octave homepage http://www.octave.org/
GNU R homepage http://www.r-project.org/
GNU R manual http://cran.r-project.org/doc/manuals/R-intro.pdf
Gnuplot homepage http://www.gnuplot.info/
Gretl data page http://gretl.sourceforge.net/gretl_data.html
Gretl homepage http://gretl.sourceforge.net/
GTK+ homepage http://www.gtk.org/
GTK+ port for win32 https://wiki.gnome.org/Projects/GTK/Win32/
InfoZip homepage http://www.info-zip.org/pub/infozip/zlib/
JMulTi homepage http://www.jmulti.de/
JRSoftware http://www.jrsoftware.org/
Julia homepage http://julialang.org/
Mingw (gcc for win32) homepage http://www.mingw.org/
Minpack http://www.netlib.org/minpack/
Penn World Table http://pwt.econ.upenn.edu/
Readline homepage http://cnswww.cns.cwru.edu/~chet/readline/rltop.html
Readline manual http://cnswww.cns.cwru.edu/~chet/readline/readline.html
Xmlsoft homepage http://xmlsoft.org/
465
Bibliography
Akaike, H. (1974) ‘A new look at the statistical model identification’, IEEE Transactions on Auto-
matic Control AC-19: 716–723.
Anderson, T. W. and C. Hsiao (1981) ‘Estimation of dynamic models with error components’, Jour-
nal of the American Statistical Association 76: 598–606.
Andrews, D. W. K. and J. C. Monahan (1992) ‘An improved heteroskedasticity and autocorrelation

consistent covariance matrix estimator’, Econometrica 60: 953–966.
Arellano, M. (2003) Panel Data Econometrics, Oxford: Oxford University Press.
Arellano, M. and S. Bond (1991) ‘Some tests of specification for panel data: Monte carlo evidence
and an application to employment equations’, The Review of Economic Studies 58: 277–297.
Armesto, M. T., K. Engemann and M. Owyang (2010) ‘Forecasting with mixed frequencies’, Fed-
eral Reserve Bank of St. Louis Review 92(6): 521–536. URL http://research.stlouisfed.org/
publications/review/10/11/Armesto.pdf.
Baiocchi, G. and W. Distaso (2003) ‘GRETL: Econometric software for the GNU generation’, Journal
of Applied Econometrics 18: 105–110.
Baltagi, B. H. (1995) Econometric Analysis of Panel Data, New York: Wiley.
Baltagi, B. H. and Y.-J. Chang (1994) ‘Incomplete panels: A comparative study of alternative esti-
mators for the unbalanced one-way error component regression model’, Journal of Econometrics
62: 67–89.
Baltagi, B. H. and Q. Li (1990) ‘A lagrange multiplier test for the error components model with
incomplete panels’, Econometric Reviews 9: 103–107.
Baltagi, B. H. and P. X. Wu (1999) ‘Unequally spaced panel data regressions with AR(1) distur-
bances’, Econometric Theory 15: 814–823.
Barrodale, I. and F. D. K. Roberts (1974) ‘Solution of an overdetermined system of equations in the

ℓl norm’, Communications of the ACM 17: 319–320.
Baxter, M. and R. G. King (1999) ‘Measuring business cycles: Approximate band-pass filters for
economic time series’, The Review of Economics and Statistics 81(4): 575–593.
Beck, N. and J. N. Katz (1995) ‘What to do (and not to do) with time-series cross-section data’, The
American Political Science Review 89: 634–647.
Bera, A. K., C. M. Jarque and L. F. Lee (1984) ‘Testing the normality assumption in limited depen-
dent variable models’, International Economic Review 25: 563–578.
Berndt, E., B. Hall, R. Hall and J. Hausman (1974) ‘Estimation and inference in nonlinear structural
models’, Annals of Economic and Social Measurement 3(4): 653–665.
Bhargava, A., L. Franzini and W. Narendranathan (1982) ‘Serial correlation and the fixed effects
model’, Review of Economic Studies 49: 533–549.
Blundell, R. and S. Bond (1998) ‘Initial conditions and moment restrictions in dynamic panel data
models’, Journal of Econometrics 87: 115–143.
466
Bibliography 467
Bond, S., A. Hoeffler and J. Temple (2001) ‘GMM estimation of empirical growth models’. Economics
Papers from Economics Group, Nuffield College, University of Oxford, No 2001-W21.
Boswijk, H. P. (1995) ‘Identifiability of cointegrated systems’. Tinbergen Institute Discussion Paper

95-78. URL http://www.ase.uva.nl/pp/bin/258fulltext.pdf.
Boswijk, H. P. and J. A. Doornik (2004) ‘Identifying, estimating and testing restricted cointegrated
systems: An overview’, Statistica Neerlandica 58(4): 440–465.
Bournay, J. and G. Laroque (1979) ‘Réflexions sur la méthode d’élaboration des comptes
trimestriels’, Annales de l’inséé (36): 3–30. URL http://www.jstor.com/stable/20075332.
Box, G. E. P. and G. Jenkins (1976) Time Series Analysis: Forecasting and Control, San Franciso:
Holden-Day.
Brand, C. and N. Cassola (2004) ‘A money demand system for euro area M3’, Applied Economics
36(8): 817–838.
Butterworth, S. (1930) ‘On the theory of filter amplifiers’, Experimental Wireless & The Wireless
Engineer 7: 536–541.
Byrd, R. H., P. Lu, J. Nocedal and C. Zhu (1995) ‘A limited memory algorithm for bound constrained
optimization’, SIAM Journal on Scientific Computing 16(5): 1190–1208.
Cameron, A. C. and D. L. Miller (2015) ‘A practitioner’s guide to cluster-robust inference’, Journal

of Human Resources 50(2): 317–373.
Cameron, A. C. and P. K. Trivedi (1986) ‘Econometric models based on count data: comparisons
and applications of some estimators and tests’, Journal of Applied Econometrics 1: 29–54.
(1998) Regression Analysis of Count Data, Cambridge: Cambridge University Press.
(2005) Microeconometrics, Methods and Applications, Cambridge: Cambridge University

Press.
(2013) Regression Analysis of Count Data, Cambridge University Press.
Caselli, F., G. Esquivel and F. Lefort (1996) ‘Reopening the convergence debate: A new look at
cross-country growth empirics’, Journal of Economic Growth 1(3): 363–389.
Chesher, A. and M. Irish (1987) ‘Residual analysis in the grouped and censored normal linear
model’, Journal of Econometrics 34: 33–61.
Choi, I. (2001) ‘Unit root tests for panel data’, Journal of International Money and Finance 20(2):
249–272.
Cholette, P. A. (1984) ‘Adjusting sub-annual series to yearly benchmarks’, Survey Methodology

10(1): 35–49. URL https://www150.statcan.gc.ca/n1/pub/12-001-x/1984001/article/
14348-eng.pdf.
Chow, G. C. and A.-l. Lin (1971) ‘Best linear unbiased interpolation, distribution, and extrapolation
of time series by related series’, The Review of Economics and Statistics 53(4): 372–375. URL
https://www.jstor.org/stable/1928739.
Cleveland, W. S. (1979) ‘Robust locally weighted regression and smoothing scatterplots’, Journal
of the American Statistical Association 74(368): 829–836.
Cottrell, A. (2017) ‘Random effects estimators for unbalanced panel data: a Monte Carlo analysis’.
gretl working papers, number 4. URL https://ideas.repec.org/p/anc/wgretl/4.html.
Cottrell, A. and R. Lucchetti (2016) Gretl Function Package Guide, gretl documentation. URL http:
//sourceforge.net/projects/gretl/files/manual/.
Bibliography 468
Cribari-Neto, F. and S. G. Zarkos (2003) ‘Econometric and statistical computing using Ox’, Compu-
tational Economics 21: 277–295.
Davidson, R. and E. Flachaire (2001) ‘The wild bootstrap, tamed at last’. GREQAM Document de
Travail 99A32. URL http://russell.vcharite.univ-mrs.fr/GMMboot/wild5-euro.pdf.
Davidson, R. and J. G. MacKinnon (1993) Estimation and Inference in Econometrics, New York:
Oxford University Press.
(2004) Econometric Theory and Methods, New York: Oxford University Press.
Denton, F. T. (1971) ‘Adjustment of monthly or quarterly series to annual totals: An approach

based on quadratic minimization’, Journal of the American Statistical Association 66(333): 99–102.
URL http://www.jstor.com/stable/2284856.
Di Fonzo, T. (2003) ‘Benchmarking di serie storiche economiche. Nota tecnica ed estensioni’. Work-
ing paper, Università degli Studi di Padova. URL http://paduaresearch.cab.unipd.it/7302/
1/WP_2003_10.pdf.
Di Fonzo, T. and M. Marini (2012) ‘On the extrapolation with the Denton proportional benchmark-
ing method’. IMF Working Paper WP/12/169. URL https://www.imf.org/external/pubs/ft/
wp/2012/wp12169.pdf.
Doornik, J. A. (1995) ‘Testing general restrictions on the cointegrating space’. Discussion Paper,
Nuffield College. URL http://www.doornik.com/research/coigen.pdf.
(1998) ‘Approximations to the asymptotic distribution of cointegration tests’, Journal of

Economic Surveys 12: 573–593. Reprinted with corrections in McAleer and Oxley (1999).
(2007) Object-Oriented Matrix Programming Using Ox, London: Timberlake Consultants

Press, third edn. URL http://www.doornik.com.
Doornik, J. A., M. Arellano and S. Bond (2006) Panel Data estimation using DPD for Ox.
Doornik, J. A. and H. Hansen (1994) ‘An omnibus test for univariate and multivariate normality’.
Working paper, Nuffield College, Oxford.
Durbin, J. and S. J. Koopman (2012) Time Series Analysis by State Space Methods, Oxford: Oxford
University Press, second edn.
Elliott, G., T. J. Rothenberg and J. H. Stock (1996) ‘Efficient tests for an autoregressive unit root’,
Econometrica 64: 813–836.
Engle, R. F. and C. W. J. Granger (1987) ‘Co-integration and error correction: Representation, esti-
mation, and testing’, Econometrica 55: 251–276.
Fernández, R. B. (1981) ‘A methodological note on the estimation of time series’, The Review of
Economics and Statistics 63(3): 471–476. URL https://www.jstor.org/stable/1924371.
Fiorentini, G., G. Calzolari and L. Panattoni (1996) ‘Analytic derivatives and the computation of
GARCH estimates’, Journal of Applied Econometrics 11: 399–417.
Frigo, M. and S. G. Johnson (2005) ‘The design and implementation of FFTW3’, Proceedings of the
IEEE 93 2: 216–231.
Ghysels, E. (2015) ‘MIDAS Matlab Toolbox’. University of North Carolina, Chapel Hill. URL http:
//www.unc.edu/~eghysels/papers/MIDAS_Usersguide_V1.0.pdf.
Ghysels, E. and H. Qian (2016) ‘Estimating MIDAS regressions via OLS with polynomial parameter
profiling’. University of North Carolina, Chapel Hill, and MathWorks. URL http://dx.doi.org/
10.2139/ssrn.2837798.
Bibliography 469
Ghysels, E., P. Santa-Clara and R. Valkanov (2004) ‘The MIDAS touch: Mixed data sampling re-
gression models’. Série Scientifique, CIRANO, Montréal. URL http://www.cirano.qc.ca/files/
publications/2004s-20.pdf.
Golub, G. H. and C. F. Van Loan (1996) Matrix Computations, Baltimore and London: The John
Hopkins University Press, third edn.
Goossens, M., F. Mittelbach and A. Samarin (2004) The LATEX Companion, Boston: Addison-Wesley,
second edn.
Gould, W. (2013) ‘Interpreting the intercept in the fixed-effects model’. URL http://www.stata.
com/support/faqs/statistics/intercept-in-fixed-effects-model/.
Gourieroux, C., A. Monfort, E. Renault and A. Trognon (1987) ‘Generalized residuals’, Journal of
Econometrics 34: 5–32.
Greene, W. H. (2000) Econometric Analysis, Upper Saddle River, NJ: Prentice-Hall, fourth edn.
(2003) Econometric Analysis, Upper Saddle River, NJ: Prentice-Hall, fifth edn.
Hall, A. D. (2005) Generalized Method of Moments, Oxford: Oxford University Press.
Hamilton, J. D. (1994) Time Series Analysis, Princeton, NJ: Princeton University Press.
Hannan, E. J. and B. G. Quinn (1979) ‘The determination of the order of an autoregression’, Journal
of the Royal Statistical Society, B 41: 190–195.
Hansen, L. P. (1982) ‘Large sample properties of generalized method of moments estimation’,

Econometrica 50(4): 1029–1054.
Hansen, L. P. and K. J. Singleton (1982) ‘Generalized instrumental variables estimation of nonlinear

rational expectations models’, Econometrica 50: 1269–1286.
Harvey, A. C. (1989) Forecasting, Structural Time Series Models and the Kalman Filter, Cambridge:
Cambridge University Press.
Harvey, A. C. and A. Jaeger (1993) ‘Detrending, stylized facts and the business cycle’, Journal of
Applied Econometrics 8(3): 231–247.
Hausman, J. A. (1978) ‘Specification tests in econometrics’, Econometrica 46: 1251–1271.
Heckman, J. (1979) ‘Sample selection bias as a specification error’, Econometrica 47: 153–161.
Hodrick, R. and E. C. Prescott (1997) ‘Postwar U.S. business cycles: An empirical investigation’,
Journal of Money, Credit and Banking 29: 1–16.
Im, K. S., M. H. Pesaran and Y. Shin (2003) ‘Testing for unit roots in heterogeneous panels’, Journal
of Econometrics 115: 53–74.
Islam, N. (1995) ‘Growth Empirics: A Panel Data Approach’, The Quarterly Journal of Economics
110(4): 1127–1170.
Johansen, S. (1995) Likelihood-Based Inference in Cointegrated Vector Autoregressive Models, Ox-

ford: Oxford University Press.
Kalbfleisch, J. D. and R. L. Prentice (2002) The Statistical Analysis of Failure Time Data, New York:
Wiley, second edn.
Keane, M. P. and K. I. Wolpin (1997) ‘The career decisions of young men’, Journal of Political
Economy 105: 473–522.
King, R. G. and S. T. Rebelo (1993) ‘Low frequency filtering and real business cycles’, Journal of
Economic dynamics and Control 17(1-2): 207–231.
Bibliography 470
Klein, P. (2000) ‘Using the generalized Schur form to solve a multivariate linear rational expecta-
tions model’, Journal of Economic Dynamics and Control 24(10): 1405–1423.
Koenker, R. (1994) ‘Confidence intervals for regression quantiles’. In P. Mandl and M. Huskova
(eds.), Asymptotic Statistics, pp. 349–359. New York: Springer-Verlag.
Koenker, R. and G. Bassett (1978) ‘Regression quantiles’, Econometrica 46: 33–50.
Koenker, R. and K. Hallock (2001) ‘Quantile regression’, Journal of Economic Perspectives 15(4):
143–156.
Koenker, R. and J. Machado (1999) ‘Goodness of fit and related inference processes for quantile
regression’, Journal of the American Statistical Association 94: 1296–1310.
Koenker, R. and Q. Zhao (1994) ‘L-estimation for linear heteroscedastic models’, Journal of Non-
parametric Statistics 3: 223–235.
Koopman, S. J. (1993) ‘Disturbance smoother for state space models’, Biometrika 80: 117–126.
Koopman, S. J., N. Shephard and J. A. Doornik (1999) ‘Statistical algorithms for models in state
space using SsfPack 2.2’, Econometrics Journal 2: 107–160.
Kwiatkowski, D., P. C. B. Phillips, P. Schmidt and Y. Shin (1992) ‘Testing the null of stationarity
against the alternative of a unit root: How sure are we that economic time series have a unit
root?’, Journal of Econometrics 54: 159–178.
Levin, A., C.-F. Lin and J. Chu (2002) ‘Unit root tests in panel data: asymptotic and finite-sample
properties’, Journal of Econometrics 108: 1–24.
Lucchetti, R. (2011) ‘State space methods in gretl’, Journal of Statistical Software 41(11): 1–22.
Lucchetti, R., L. Papi and A. Zazzaro (2001) ‘Banks’ inefficiency and economic growth: A micro
macro approach’, Scottish Journal of Political Economy 48: 400–424.
Lütkepohl, H. (2005) New Intoduction to Multiple Time Series Analysis, Berlin: Springer.
MacKinnon, J. G. (1996) ‘Numerical distribution functions for unit root and cointegration tests’,
Journal of Applied Econometrics 11: 601–618.
MacKinnon, J. G. and H. White (1985) ‘Some heteroskedasticity-consistent covariance matrix esti-

mators with improved finite sample properties’, Journal of Econometrics 29: 305–325.
Magnus, J. R. and H. Neudecker (1988) Matrix Differential Calculus with Applications in Statistics
and Econometrics, John Wiley & Sons.
McAleer, M. and L. Oxley (1999) Practical Issues in Cointegration Analysis, Oxford: Blackwell.
McCullagh, P. and J. A. Nelder (1983) Generalized linear models, London and New York: Chapman
and Hall.
McCullough, B. D. and C. G. Renfro (1998) ‘Benchmarks and software standards: A case study of
GARCH procedures’, Journal of Economic and Social Measurement 25: 59–71.
Melard, G. (1984) ‘Algorithm AS 197: A Fast Algorithm for the Exact Maximum Likelihood of
Autoregressive-Moving Average Models’, Journal of the Royal Statistical Society. Series C (Applied
Statistics 33(1): 104–114.
Morales, J. L. and J. Nocedal (2011) ‘Remark on Algorithm 778: L-BFGS-B: Fortran routines for
large-scale bound constrained optimization’, ACM Transactions on Mathematical Software 38(1):
1–4.
Mroz, T. (1987) ‘The sensitivity of an empirical model of married women’s hours of work to eco-
nomic and statistical assumptions’, Econometrica 5: 765–799.
Bibliography 471
Nadaraya, E. A. (1964) ‘On estimating regression’, Theory of Probability and its Applications 9:
141–142.
Nash, J. C. (1990) Compact Numerical Methods for Computers: Linear Algebra and Function Min-
imisation, Bristol: Adam Hilger, second edn.
Nerlove, M. (1971) ‘Further evidence on the estimation of dynamic economic relations from a time
series of cross sections’, Econometrica 39: 359–382.
(1999) ‘Properties of alternative estimators of dynamic panel models: An empirical anal-

ysis of cross-country data for the study of economic growth’. In C. Hsiao, K. Lahiri, L.-F. Lee
and M. H. Pesaran (eds.), Analysis of Panels and Limited Dependent Variable Models. Cambridge:
Cambridge University Press.
Newey, W. K. and K. D. West (1987) ‘A simple, positive semi-definite, heteroskedasticity and auto-
correlation consistent covariance matrix’, Econometrica 55: 703–708.
(1994) ‘Automatic lag selection in covariance matrix estimation’, Review of Economic Stud-
ies 61: 631–653.
Okui, R. (2009) ‘The optimal choice of moments in dynamic panel data models’, Journal of Econo-
metrics 151(1): 1–16.
Pelagatti, M. (2011) ‘State space methods in Ox/SsfPack’, Journal of Statistical Software 41(3): 1–25.
Pollock, D. S. G. (2000) ‘Trend estimation and de-trending via rational square-wave filters’, Journal
of Econometrics 99(2): 317–334.
Portnoy, S. and R. Koenker (1997) ‘The Gaussian hare and the Laplacian tortoise: computability of
squared-error versus absolute-error estimators’, Statistical Science 12(4): 279–300.
Press, W., S. Teukolsky, W. Vetterling and B. Flannery (2007) Numerical Recipes: The Art of Scientific
Computing, Cambridge University Press, 3 edn.
Ramanathan, R. (2002) Introductory Econometrics with Applications, Fort Worth: Harcourt, fifth
edn.
Rao, C. R. (1973) Linear Statistical Inference and its Applications, New York: Wiley, second edn.
Roodman, D. (2009a) ‘How to do xtabond2: An introduction to difference and system GMM in

Stata’, The Stata Journal 9: 86–136. URL https://doi.org/10.1177/1536867X0900900106.
(2009b) ‘A note on the theme of too many instruments’, Oxford Bulletin of Economics and
Statistics 71: 135–158. URL https://doi.org/10.1111/j.1468-0084.2008.00542.x.
Sargan, J. D. (1958) ‘The estimation of economic relationships using instrumental variables’, Econo-
metrica 26(3): 393–415. URL https://doi.org/10.2307/1907619.
Schwarz, G. (1978) ‘Estimating the dimension of a model’, Annals of Statistics 6: 461–464.
Sephton, P. S. (1995) ‘Response surface estimates of the KPSS stationarity test’, Economics Letters
47: 255–261.
Shumway, R. H. and D. S. Stoffer (2017) Time series analysis and its applications: with R examples,
Springer, 4th edn.
Sims, C. A. (1980) ‘Macroeconomics and reality’, Econometrica 48: 1–48.
Steinhaus, S. (1999) ‘Comparison of mathematical programs for data analysis (edition 3)’. Univer-
sity of Frankfurt. URL http://www.informatik.uni-frankfurt.de/~stst/ncrunch/.
Stock, J. H. and M. W. Watson (1999) ‘Forecasting inflation’, Journal of Monetary Economics 44(2):
293–335.
Bibliography 472
(2003) Introduction to Econometrics, Boston: Addison-Wesley.
(2008) ‘Heteroskedasticity-robust standard errors for fixed effects panel data regression’,
Econometrica 76(1): 155–174.
Stokes, H. H. (2004) ‘On the advantage of using two or more econometric software systems to
solve the same problem’, Journal of Economic and Social Measurement 29: 307–320.
Swamy, P. A. V. B. and S. S. Arora (1972) ‘The exact finite sample properties of the estimators of
coefficients in the error components regression models’, Econometrica 40: 261–275.
Theil, H. (1961) Economic Forecasting and Policy, Amsterdam: North-Holland.
(1966) Applied Economic Forecasting, Amsterdam: North-Holland.
Verbeek, M. (2004) A Guide to Modern Econometrics, New York: Wiley, second edn.
Watson, G. S. (1964) ‘Smooth regression analysis’, Shankya Series A 26: 359–372.
White, H. (1980) ‘A heteroskedasticity-consistent covariance matrix astimator and a direct test for
heteroskedasticity’, Econometrica 48: 817–838.
Windmeijer, F. (2005) ‘A finite sample correction for the variance of linear efficient two-step GMM
estimators’, Journal of Econometrics 126: 25–51.
Wooldridge, J. M. (2002a) Econometric Analysis of Cross Section and Panel Data, Cambridge, MA:
MIT Press.
(2002b) Introductory Econometrics, A Modern Approach, Mason, OH: South-Western, sec-

ond edn.
Yalta, A. T. and A. Y. Yalta (2007) ‘GRETL 1.6.0 and its numerical accuracy’, Journal of Applied
Econometrics 22: 849–854.
Zhu, C., R. H. Byrd and J. Nocedal (1997) ‘Algorithm 778: L-BFGS-B: Fortran routines for large-scale
bound-constrained optimization’, ACM Transactions on Mathematical Software 23(4): 550–560.

Gretl Guide

Uploaded by

Copyright:

Available Formats

Gretl Guide

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Gretl Guide

Uploaded by

Copyright:

Available Formats

Gretl User’s Guide

Gnu Regression, Econometrics and Time-series Library

Riccardo “Jack” Lucchetti

I Running the program 3

5.4 Panel data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

6 Graphs and plots 36

7 Joining data sources 48

9.9 Multiple low-frequency series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

10 Special functions in genr 82

11 Gretl data types 85

13 Loop constructs 102

14 User-defined functions 109

15 Named lists and strings 121

16 String-valued series 130

16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

17 Matrix manipulation 138

18 Complex matrices 155

19 Calendar dates 162

20 Handling mixed-frequency data 167

20.4 High-frequency first differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

21 Cheat sheet 178

II Econometric methods 194

22 Robust covariance matrix estimation 195

23 Panel data 204

24 Dynamic panel models 214

25 Nonlinear least squares 229

26 Maximum likelihood estimation 235

27 GMM estimation 256

28 Model selection criteria 268

29 Degrees of freedom correction 270

30 Time series filters 276

31 Univariate time series models 282

32 Vector Autoregressions 296

33 Cointegration and Vector Error Correction Models 305

34 Multivariate models 322

36 State Space Modeling 336

36.5 The kfilter function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

37 Numerical methods 358

38 Discrete and censored dependent variables 371

39 Quantile regression 393

40 Nonparametric methods 398

41 MIDAS models 403

41.3 Parameterization functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410

III Technical details 414

42 Gretl and ODBC 415

43 Gretl and TEX 421

44 Gretl and R 427

45 Gretl and Ox 438

46 Gretl and Octave 442

47 Gretl and Stata 446

48 Gretl and Python 448

49 Gretl and Julia 450

50 Troubleshooting gretl 452

51 The command line interface 454

A Data file details 456

B Building gretl 458

C Numerical accuracy 463

D Related free software 464

E Listing of URLs 465

1.1 Features at a glance