Intro to Econometrics

Using Excel for Estimation

Descriptive Statistics

• Measures of CentralTendency– Mean• The average

– Median• The middle

– Mode• The most frequent

Descriptive Statistics

• Measures of Dispersion– Range– Standard Deviation

Normal Distribution

• EX – Grades– Test average is a 75– Standard Deviation is 10 points

68.2% of the grades will be between65 and 85

Normal Distribution

• EX – Grades– Test average is a 75– Standard Deviation is 10 points

95.4% of the grades will be between55 and 95

Linear Regression

• Suppose we wish to find out how attendance affects your grade

• We can estimate the following linear regression using ordinary least squares (OLS)

Linear Regression

Grade

Attendance

.

..

.

.

..

.

𝐺𝑟𝑎𝑑𝑒=𝛽𝑜+𝛽1 𝐴𝑡𝑡𝑒𝑛𝑑𝑎𝑛𝑐𝑒+𝜀𝑡

𝛽𝑜

𝛽1

Statistical Significance

• We can say an estimate is “statistically significant” at the 95% level if we can construct a confidence interval around the estimate that does not include zero

• EX .358 < β < 1.25• That is to say, we are 95% confident that there

is a positive relationship between y an x

Normal Distribution

• Statistical Significance– We are 95% confident that the estimate, , is not 0

Side note, Rule of thumb: if the t-statistic is larger than 2 then we can be 95% sure that the estimate is not zero

Getting Started

• First, you will need to load the “Analysis ToolPak” add-in if it is not already installed– Office Button– Excel Options

Getting Started

1. Click Add-Ins2. Select Analysis

ToolPak3. Click Go 1

2

3

Getting Started

• Select the Analysis ToolPak and hit OK• Once it has loaded your top bar

should include a new icon underthe Data tab

Application

– On the website, there is data on the quantity, price, and average income for different sales areas for the Kalamazoo Brewing Company

Application

– Use this data to compute descriptive statistics for each state provided (IL, IN, MI)

– Use this data to find estimates for the following demand function