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7/25/2019 Intrdouction to Econometrics
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INTRODUCTION TO
ECONOMETRICS
Naveen Adhikari
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ECONOMETRICS
Econometrics , the result of a certain outlook on the
role of economics, consists of the application ofmathematical statistics to economic data to lend
empirical support to the models constructed by
mathematical economics and to obtain numerical
results (Tinter, 1968)
Econometrics may be defined as the social science in
which the tools of economic theory, mathematics and
statistical inference are applied to the analysis of
economic phenomena (Goldberger, 1964)
Econometrics is based upon the development ofstatistical methods for estimating economic
relationships, testing economic theories, and
evaluating and implementing government and
business policy (Wooldridge, 2006)
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INGREDIENTS..
Economic/Business Theories
Economic Models
Mathematical Exposition of the Models
Statistical Methods to estimate those models
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ECONOMICS THEORIES?
Economic theories explain the behavior of
economic agents like consumer, producer,
government etc.
It aims to find out- the factors influencing the
particular behavior and change on behavior
following change on those factors.
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ECONOMIC MODELS???
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ECONOMIC MODELS
amodelis a theoretical construct that
represents economic processes by a set
of variables and a set of logical and/or
quantitative relationships between them. The
economic model is a simplified frameworkdesigned to illustrate complex processes, often
but not always using mathematical techniques
(http://en.wikipedia.org/wiki/Economic_model)
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ECONOMIC MODELS
Exposition of Behavior of Economic AgentsExpressed by some causal relationship (explained
by economic theories) in qualitative/quantitative
form
Expressed by equations or system of equationsSimplification of complex economic phenomena
Lists of Assumptions
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TYPES OF ECONOMIC MODELS
Quantitative Vs. Qualitative
Deterministic Vs. Stochastic
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STOCHASTIC
Stochastic modelsare formulated using stochastic
processes. They model economically observable valuesover time. Most of econometrics is based
on statistics to formulate and test hypotheses about
these processes or estimate parameters for them. A
widely used class of econometric models popularized
by Tinbergen andlater Wold are autoregressive models, in which the
stochastic process satisfies some relation between
current and past values. Examples of these
are autoregressive moving average models and
related ones such asautoregressive conditionalheteroskedasticity(ARCH) andGARCHmodels for
the modelling ofheteroskedasticity (
http://en.wikipedia.org/wiki/Economic_model)
http://en.wikipedia.org/wiki/Autoregressive_conditional_heteroskedasticityhttp://en.wikipedia.org/wiki/Autoregressive_conditional_heteroskedasticityhttp://en.wikipedia.org/wiki/GARCHhttp://en.wikipedia.org/wiki/Heteroskedasticityhttp://en.wikipedia.org/wiki/Economic_modelhttp://en.wikipedia.org/wiki/Economic_modelhttp://en.wikipedia.org/wiki/Heteroskedasticityhttp://en.wikipedia.org/wiki/GARCHhttp://en.wikipedia.org/wiki/Autoregressive_conditional_heteroskedasticityhttp://en.wikipedia.org/wiki/Autoregressive_conditional_heteroskedasticity7/25/2019 Intrdouction to Econometrics
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NON-STOCHASTIC
Non-stochastic mathematical modelsmay be
purely qualitative (for example, models involved insome aspect of social choice theory) or quantitative
(involving rationalization of financial variables, for
example with hyperbolic coordinates, and/or specific
forms of functional relationships between variables).
In some cases economic predictions of a modelmerely assert the direction of movement of economic
variables, and so the functional relationships are
used only in a qualitative sense: for example, if the
priceof an item increases, then thedemandfor thatitem will decrease. For such models, economists
often use two-dimensional graphs instead of
functions (
http://en.wikipedia.org/wiki/Economic_model)
http://en.wikipedia.org/wiki/Pricehttp://en.wikipedia.org/wiki/Demand_(economics)http://en.wikipedia.org/wiki/Economic_modelhttp://en.wikipedia.org/wiki/Economic_modelhttp://en.wikipedia.org/wiki/Demand_(economics)http://en.wikipedia.org/wiki/Price7/25/2019 Intrdouction to Econometrics
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METHODOLOGY OF ECONOMETRICS
Statement of theory or hypothesis
Specification of the mathematical model of the
theory
Specification of the statistical, or econometric
model
Obtaining data
Estimation of the parameters of econometric model
Hypothesis TestingForecasting or Prediction
Using The model for control or policy purposes
(Gujrati, 2007)
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TYPE OF DATA
Cross Section
Time Series
Pooled and Panel Data
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CROSS SECTION DATA
A cross sectional data set consists of a sample of
individuals, households, firms, cities, states,
countries or a verity of other units, taken at a
given point in time (Wooldride, 2005).
The data may have not been collected at exact
time but important factor is with out regards for
difference on time.
Example: CBSs Nepal Living Standard Survey,
Nepal Labor Force Survey, NRBs HouseholdBudget Survey, Other Household Surveys (eg
Thesis)
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TIME SERIES
atime seriesis a sequence ofdata points,
measured typically at successive time instants
spaced at uniform time intervals.
Data is observed at different points of time eg.Daily, weekly, monthly, Quarterly, Yearly and
More.
Example: Gross Domestic Product (GDP),Consumer Price Index (CPI), Stock Price Index
(NEPSE) etc.
http://en.wikipedia.org/wiki/Data_pointhttp://en.wikipedia.org/wiki/Data_point7/25/2019 Intrdouction to Econometrics
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POOLED AND PANEL DATA
A combination of both cross section and time
series.
A variable is recorded across society/ Households/
individuals as well as over period of time.
Pooled- Same variable is recorded on same
population
Panel-Same variable is recoded on same sample
(respondent)
Eg: Three Rounds of NLSS forms a pool data and
same household interviewed on all rounds form
panel data.
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THANK YOU