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Introduction to EconometricsLecture 0: Introduction
Zhaopeng Qu
Business School,Nanjing University
Sep.10 2020
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Outlines
Outlines
1 Introduction: A Scientific Framework of Rational Knowledge
2 What is Econometrics?
3 Why and who should take the course?
4 Logistics to the Course
5 The Structure of Economic Data
6 Homework(not required)
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Introduction: A Scientific Framework of Rational Knowledge
Introduction: A Scientific Framework of RationalKnowledge
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Introduction: A Scientific Framework of Rational Knowledge
Interesting and Important Questions
An Complex and Dynamic World
Living in an unprecedentedly complex and dynamic world, weneed
rationalknowledge(理性认知).
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Introduction: A Scientific Framework of Rational Knowledge
Interesting and Important Questions
Question #1 in Textbooks: Student’s Performance andClass
Size
Economics suggests important relationships, often with
policyimplications, but virtually never suggests quantitative
magnitudesof causal effects.A Classical Issue in Economics of
Education: Student’s Performanceand Class Size
Turn it into an empirical or policy question: What is the
quantitativeeffect of reducing class size on student
achievement?Like by 5 student per class? or 10?
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Introduction: A Scientific Framework of Rational Knowledge
Interesting and Important Questions
Question #2: Discrimination in the Market?
Discrimination is the situation where people who are presumed
tobe equally productive or have equally productive capacity,
gettreated differently by the market.Because of their gender, their
religion, sexual orientation or thecolor of their skin, whatever
even though these characteristics areirrelevant for the purpose
being considered.
Racial Discrimination in the market for Home Loans.Gender
Discrimination in Labor MarketHukou Discrimination in China
To see if there is a difference in the probability of being
deniedfor otherwise identical applicants and, if so, whether
thisdifference is large or small.
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Introduction: A Scientific Framework of Rational Knowledge
Interesting and Important Questions
Question #3: Cigarette Taxes and Smoking?
Cigarette smoking is a major public health concern
worldwide.medical expenses of caring for those made sick by
smoking.nonsmokers breathe secondhand cigarette smoke.
Basic economics says : cigarette prices go up, consumption
willgo down.
But by how much? If the sales price goes up by 1%, by
whatpercentage will the quantity of cigarettes sold decrease?The
percentage change in the quantity demanded resulting from a
1%increase in price is the price elasticity of demand,the
numericalvalue, which economic theory can never provide.
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Introduction: A Scientific Framework of Rational Knowledge
Interesting and Important Questions
Other Similar Questions
Air pollution and Health?Credit regulation on housing
priceCoupon on products salesTrade War...
Living in such a“messy”world, as a educated person, weneed
rational knowledge to make rational decisions.
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Introduction: A Scientific Framework of Rational Knowledge
Interesting and Important Questions
Quantitative Answers to Quantitative Questions
Many decisions in economics, business and government hinge
onunderstanding the relationship among variables in the worldaround
us.
Economic theory may provide clues about the direction ofthe
answer.But decisions require quantitative answers to
quantitativequestions.
Therefore, we have develop a framework and find a
practicalmethod that provide both a numerical answer to the
questionand a measure of how precise the answer is.
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
How can we have rational knowledge(judgment)?
Anecdotes(轶事）or Intuition(直觉）Theory(理论/逻辑推理）
Systematical methodology: Hypothesis, Logical
deduction...Empirics（数据实证）
statistical inference from data.
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
An Example: Smoke and Mortality
Anecdotes(轶事）or Intuition(直觉）eg. “My grandmother smoked two
packs a day and lived until she was95 years old.”
Theory因为香烟中含有尼古丁、焦油等致癌物，所以...
Empirics做实验或者通过抽样调查等方式收集数据，再用统计或计量方法来验证。
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
Classical Theory Question: Human Capital v.s Signal
A common phenomenon in labor markets can be observed allover the
world.
Higher education, Better pay!
Two classical theory to explainHuman Capital: Education improves
work productivity.Signal: Education does not increase the
productivity. It simply servesas a signal of the individuals’
innate ability.
Question: which one is right?
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
Hot Public Policy Debate: Minimum Wage andUnemployment
Classical Supply-Demand Model tell us
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
Hot Public Policy Debate: Minimum Wage andUnemployment
One famous empiricalevidence challenged thetheory by Card
andKrueger(1994)They found thatincreases in theminimum wage doNOT
lead to job losses.
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
Warp Up: Theory, Empirics and Math
Economic theories sole are not enough to explain
socialphenomenon.
It should be tested by empirical evidence.When having competing
theories, we need more test tojustify which one is more likely
right.
When mechanism is clear, math is unnecessary, but
empiricalevidence is unexpendabley.
Having a mathematical model is better, but sometimes
notnecessary⋯
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Introduction: A Scientific Framework of Rational Knowledge A
Scientific Framework to Analysis
An Scientific Workflow to Analyzing
By Intuition: Propose meaningful or interesting questions(It
doesmatter or we care about)By Theory: Obtain a preliminary
conclusion or proposal anhypothesisBy Empirics: use data and
quantitive methods to test yourtheory or conclusion.
Intuition Theory Empirics
It is the job of Econometrics
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What is Econometrics?
What is Econometrics?
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What is Econometrics? Definitions
Introduction: Econometrics
The term is attributed toRagnar Frisch(1895-1973);1969 Nobel
Prize co-winner（the first year for Economics)
Although the term coins by acombination of economics
andmetrology, it is special enough insocial science and science at
thattime.
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What is Econometrics? Definitions
Introduction: Econometrics
“Econometrics is by no means the same as economic statistics.Nor
is it identical with what we call general economic theory,although
a considerable portion of this theory has a definitelyquantitative
character. Nor should econometrics be taken assynonymous with the
application of mathematics to economics.Experience has shown that
each of these three view-points, thatof statistics, economic
theory, and mathematics, is a necessary,but not by itself a
sufficient, condition for a real understanding ofthe quantitative
relations in modern economic life. It is theunification of all
three that is powerful. And it is this unificationthat constitutes
econometrics.”
(Ragnar Frisch, Econometrica, 1933, volume 1, pages. 1-2)
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What is Econometrics? Definitions
Introduction: Econometrics
Trygve Haavelmo(1911-1999)1989 Nobel Prize winner“The method of
econometricresearch aims, essentially, at aconjunction of economic
theory andactual measurements, using thetheory and technique of
statisticalinference as a bridge pier.”(Econometrica, 1944, volume
12,pages. 1-2)
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What is Econometrics? Definitions
Introduction: Econometrics
James Stock and Mark Watson(2014)“Ask a half dozen
econometricians what econometrics is—
you could get a half dozen different answers.”“At a broad level,
it is a science and art of using economic
theory and statistical techniques to analyze economicdata.”
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What is Econometrics? Definitions
Introduction: Econometrics
My View: In general, a series of scientific methods tosearching
for economic logics from data.It could include two jobs
Making a causal inference,such asTesting economic
theories.Estimating causal effects.Using data to give policy
recommendations.
Forecasting or predicting future valuesMore and more prevalence
in
other social science such as political science, sociology,law
and education studies etcand business practice, like the hottest
one: Data Science.
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What is Econometrics? Econometrics, Social Science and Big
Data.
Econometrics and methodological revolution in SocialScience
Social science(firstly started by Economics) is experiencing
twomethodological “revolutions”over the past few decades.On the one
hand, there is the “credibility revolution”
A movement that emphasizes the goal of obtaining secure
causalinferences(Angrist and Pischke, 2010)
On the other hand, there is the “Big Data revolution”A movement
that emphasizes that how our increasing ability toproduce, collect,
store and analyze vast amounts of data is going totransform our
understanding of the human affairs. (Schonberger, 2013)
Obviously, Econometrics are playing a key role in these
tworevolutions.
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What is Econometrics? Econometrics, Social Science and Big
Data.
Big Data,Data Science and Econometrics
The name comes from computer scientists working to doaggregation
on data that is too big to fit on a single machine.Data Science is
the umbrella term for inference in a world thatis messier that in
old statistic textbook.Big Data is just Applied Data
Science,especially focused onbusiness and industrial
applications.
Inference the structural models: Variable Selection and
DimensionReductionprediction: Probabilistic Prediction and
Classification Rules
Big Data toolspartially straight out of previous statistics and
econometricsclasses(Cluster, Regression and Matching)some are
totally new(such as decision trees and neural networks).
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What is Econometrics? Econometrics, Social Science and Big
Data.
Big Data,Data Science and Econometrics
There are many labels for what we
do...EconometricsStatisticsData Mining/Big Data/Data ScienceMachine
Learning(ML)Artificial Intelligence(AI)
Along this spectrum, you move from heavy focus on what thingsyou
are measuring (what real phenomena they correspond to) toa more
practical ‘useful is true’pattern discovery approach.The
similarities are much bigger than any distinctions.
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What is Econometrics? Econometrics, Social Science and Big
Data.
Econometrics: sub-fields or sub
Theoretical EconometricsIt is concerned with methods, both their
properties anddeveloping new ones.It is closely related to
mathematical statistics, and it statesassumptions of a particular
method, its properties etc.We could call theoretical
econometricians as the producerofeconometrics.
Applied EconometricsMore orientated to applied work, such as
choice of techniqueand interpretation of research finding.But it
should be also based on a solid conceptualfoundation and
somepractical experiences plus a little bitskills of computer.Most
of us are the consumers of econometrics.
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Why and who should take the course?
Why and who should take the course?
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Why and who should take the course? Why important?
Why Econometrics is so important?
Several Common Questions about Econometrics?Why should we study
econometrics?How is studying econometrics helpful in
understandingvarious problems?especially, can one excel in the
field without learningeconometrics?
The answer to the last question is simple.NO! because one hardly
to learn modern economics withoutthe knowledge of econometrics.
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Why and who should take the course? Why important?
Why Econometrics is so important?
Econometrics is one of three core courses required in
almostevery department of economics.Econometrics is a important
research field
Many Noble Prize winners
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Why and who should take the course? For Whom?
Who pursue an academic career
Congratulations! You are in one of the most promising
andinternationalizing areas in economic research of China.
Master econometrics knowledge will improve your
researchgreatly.Your research is judged on how convincing it
is.Econometrics helps ensure and formalize credibility.Overwhelming
majority of top journal articles arequantitative.
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Why and who should take the course? For Whom?
Who enter industry job marketWho want to work in industry:
mastering econometrics can helpyou get a good job!
A curious phenomenon: Why did the Wall Street hire
moremathematics/statistics /economics graduates than anytimein
history? Overwhelming financial data to analyzeCredit cards, POS
terminals and ERP systems widely used insupermarkets, banks and
factories also revolutionize thebusiness (or management) practices
in marketing,accounting, management operation etc.A lot of internet
giants even hire economists to lead theirspecial R&D
department. Such as
GoogleMicrosofteBay
Besides in finance, Big data are also grow vigorously
inConsulting and Business areas.
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Why and who should take the course? For Whom?
Who look for fun
Introduction to Econometrics could not be a boring anddemanding
variant of a mathematics course, but interestingand having fun.You
can just enjoy it by thinking in an empiricist’s way in yourdaily
life.
have novel ideas or new perspectives about our
world.Econometrics is kind of a bible or philosophy of
economists.
We will cover many very interesting storiesInteresting
Examples
Eg. Crime and Abortion in Freakonomics written bySteven
Levitt.Eg. What is the value to be the president’s son(ordaughter)?
in Economic Gangster written by RaymondFisman and Edward
Miguel.
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Why and who should take the course? Direction and Attitude
Whoever and Whatever
Whoever you would like to be or whatever you want
Every choice you make has an opportunity cost,try your bestto
make a wise one.
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Why and who should take the course? Direction and Attitude
Whoever and Whatever
Whoever you would like to be or whatever you want
Enjoy doing something seriously and cultivate a specialquality
for yourself!
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Why and who should take the course? Direction and Attitude
Hard and Soft Skills
You SHOULD learn or improve several important skills
duringcollege.
Hard SkillsLanguageComputer
Soft SkillsCritical ThinkingPresentation and WritingTeamwork
Fortunately, you will learn/practice almost all above skillsin
our class.
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Why and who should take the course? Direction and Attitude
Conclusion
In a word, Introduction to Econometrics is a very very
veryimportant and interesting course,
Please think over before your take it!Once you take it, please
work hard on it!And please enjoy working hard on it!
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Logistics to the Course
Logistics to the Course
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Logistics to the Course
About Me and our TA
My name is Zhaopeng QuPosition and Affiliation: Associate
Professor, Institute of PopulationStudies, Business School.Research
Fields: Labor Economics and Applied EconometricsOffice: Room 2017,
Anzhong BuildingOffice Hour: Make an appointment in advanceTel:
83621349Email: [email protected]
TA: Yi Wang and Xiaohan Magraduate student and Ph.D studentgood
at Stata and REmail: [email protected](only for homework)
Online resourcesOur Course Website:
https://byelenin.github.io/Metrics_2020/Wechat group: discuss
anything about the course.
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Logistics to the Course
Prerequisite
I assume that you should be comfortable some basic concepts
ofprobability theory and statistics, such as
random variableexpectationvarianceprobability density function,
p.d.f.cumulative distribution function, c.d.fcovarianceL.L.N and
C.L.TEstimatorUnbiased and ConsistentAsymptotic NormalityHypothesis
test
We will not review these basic concepts and formulas in
thelectures, may be in the recite sections by TAs(it depends).
Youshould review it by yourself anyway.
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Logistics to the Course
Reference TextbooksRequired Textbook: James H. Stock & Mark
W. Watson, (2012).Introduction to Econometrics, 3rd Edition,
Pearson Education.
影印版：格致出版社／上海人民出版社。中文版：世纪出版集团／上海人民出版社。
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Logistics to the Course
Reference TextbooksSupplementary textbook
Joshua D. Angrist & Jorn-Steffen Pischke, (2014). Mastering
’metrics:The Path from Cause to Effect. Princeton University Press.
（中译本：《精通计量：从原因到结果的探寻之路》，格致出版社，2018）Jeffrey M. Wooldridge,(2012).
Introductory Econometrics: A ModernApproach, 5th or 6th Edition,
South-Western College.
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Logistics to the Course
Computing Tools
The main computing tools used in the course are Stata and R
,optionally.
Stata is a complete, integrated statistical package thatprovides
everything you need for data analysis, datamanagement, and
graphics.R is a free software and useful for statistical study
andeconometrics.
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Logistics to the Course
Reference Books for Software
Stata Instruction任何一本中文书或英文书。
R Instruction任何一本中文或英文书。too many resources online such as
Datacamp
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 43 / 64
https://www.datacamp.com
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Logistics to the Course
Interesting Books for ReadingSteven D. Levitt and Stephen J.
Dubner, SuperFreakonomics: GlobalCooling, Patriotic Prostitutes,
and Why Suicide Bombers Should BuyLife Insurance,
2009.（中译本，《超爆魔鬼经济学》，斯蒂夫 • 列维特、斯蒂芬 • 都伯纳著，中信出版社，2010 年 1 月。）Ian
Ayres, Super Crunchers: Why Thinking-By-Numbers is the NewWay To Be
Smart, 2007. (中译本《超级数字天才》，伊恩 • 艾瑞斯著，中国青年出版社，2008 年 1 月。)Raymond
Fisman & Edward Miguel, Economic Gangsters:
Corruption,Violence, and the Poverty of Nations,
2010.(中译本:《经济黑帮：腐败、暴力的经济学》，中信出版社。）Abhijit V. Banerjee & Esther
Duflo, Poor Economics A RadicalRethinking of the Way to Fight
Global Poverty, 2011.(中译本:《贫穷的本质：我们为什么摆脱不了贫穷》，中信出版社。）Angus Deaton,
The Great Escape:Health,Wealth,and the Origins
ofInequality,2015.(中译本: 《逃离不平等: 健康、财富及不平等的起源》，中信出版社。）
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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Logistics to the Course
What I promise to offer you
Prepare lectures as well as possible.One to one interaction on
topics covered in the course, especiallyfor your own topics.Help
you start to using Stata or R to analyze some popular datasets in
China.A good score?
It depends on you.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 45 / 64
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Logistics to the Course
What I expect to you
Class participation with a little bit aggressive attitude.More
questions, more scores!Interrupt me as often as necessary! (but I
know most of youare not comfortable to this)Got a dumb question?
Please assume that you are thesmartest person in the class, and you
eventually will be!
Finish your homeworks.Self-motived learn by doing.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 46 / 64
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Logistics to the Course
Evaluation
Class Participation (10%)Homework(30%)Team Project: A research
proposal(20%)Final Exam: (40%)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 47 / 64
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Logistics to the Course
Welcome contact me and TAs
Any Questions?
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data
The Structure of Economic Data
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 49 / 64
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The Structure of Economic Data Types of Data(II): Structure
Introdution
Data StructureCross-sectional dataTime series dataPooled
cross-sectional dataPanel data
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
1.Cross-Sectional Data: (Main Focus)Units: individuals,
households, firms, cities, states, countries, etc.Data on multiple
agents at a single point in time
{xi, yi...}Ni=1;N = Sample Size
Usually obtained by random sampling from the
underlyingpopulation.It means
{xi, yi ⊥ xj, yj}, i ̸= j ∈ N
Cross-sectional data are widely used in economics and
othersocial sciences:
labor economicspublic financeindustrial economicsurban
economicsdemographyhealth economics
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
1.Cross-Sectional Data: (Main Focus)
x = STRatio; y = TestScore; N = 420Zhaopeng Qu (Nanjing
University) Introduction to Econometrics Sep.10 2020 52 / 64
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The Structure of Economic Data Types of Data(II): Structure
2.Time Series Data:(Not Cover)Observations on a variable (or
several variables) over time, thusdata on a single agent at
multiple points in time
{xt, yt...}Tt=1;T = Sample Size
Examples:stock pricesmoney supplyconsumer price index(CPI)gross
domestic product(GDP)automobile sales
Economic observations can rarely be assumed to be
independentacross time. So we have to account for the dependent
nature ofeconomic time series.
Data frequency: minutes, hourly, daily, weekly,
monthly,quarterly, annually.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
2.Time Series Data:(Not Cover)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
3.Pool(Repeat) Cross-Sectional Data(Not Cover)
Pooled cross sections can be generated by combining two ormore
years cross-sectional data.Cross-sectional data in each year is
independent with other years.
It means that data does not track the respondent
multipletimes.But the data come from a same population in different
time.
For it has both cross-sectional and time series features, so
allowsconsideration of changes in key variables over time.Simple
pooling may also be used when the number ofobservations of a single
cross section is small.It is widely used in:
Before-after comparisons of a government policyCohort
studiesCross-sectional analyses
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
3.Pool Cross-Sectional Data(Not Cover)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
4.Panel(or Longitudinal) Data
Time series for each cross-sectional member in the data set,
thusdata on multiple agents at multiple points in time.The same
cross-sectional units (individuals, firms, countries, etc.)are
followed over a given time period.
{xit, yit...}NTi=1,t=1,
Advantages of panel data:Controlling for (time-invariant)
unobserved characteristicsConsideration of the effects of lag
variables
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
4.Panel(or Longitudinal) Data
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II): Structure
Corresponding sub-fields or sub-course
Micro-EconometricsCross-SectionalPool Cross SectionalShort
Panel(large N, small T)
Macro-EconometricsTimes seriesLong Panel(small N, large T)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II)
Source
Traditional Collecting Way：Survey(调查）Administrative
data(官方业务数据）
Collecting Data in Digital Times：Mass or Big data:
Online documentsSocial MediaGeolocations or Geographic data
High Frequency DataStock,future or other financial tractional
data
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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The Structure of Economic Data Types of Data(II)
Data in China
Survey DataChina Household Income Project(CHIP)China Family
Panel Survey(CFPS)China Health and Retirement Longitudinal
Study(CHARLS)
Administrative data:Census: 全国人口普查数据；全国 1%
人口抽样调查；工业企业数据库；海关交易数据库；
Online data:Tabao,JD,TmallMovie Data on Douban.com(豆瓣电影数据）Air
Quality: PM2.5(空气质量数据）Night-Lights Data(夜间灯光数据）Land Transaction
Markets(土地交易市场数据）
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 61 / 64
http://www.ciidbnu.org/chip/http://www.isss.pku.edu.cn/cfps/http://charls.pku.edu.cn
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Homework(not required)
Homework(not required)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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Homework(not required)
Homework
到如下数据库网站选择其一登记注册China Household Income
Project(CHIP)：中国居民收入调查China Health and Nutrition
Survey(CHNS)：中国健康与营养调查China Family Panel Survey(CFPS)：中国家庭追踪调查China
Health and Retirement Longitudinal Study(CHARLS) ：中国健康养老追踪调查Chinese
General Social Survey(CGSS)：中国综合社会调查China Labor-force Dynamics
Survey(CLDS)：中国劳动力动态调查China Household Financial Survey(CHFS):
中国家庭金融调查
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
Sep.10 2020 63 / 64
http://www.ciidbnu.org/chip/https://www.cpc.unc.edu/projects/chinahttp://www.isss.pku.edu.cn/cfps/http://charls.pku.edu.cnhttp://cgss.ruc.edu.cnhttp://css.sysu.edu.cn/Data/https://chfs.swufe.edu.cn
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Homework(not required)
Homework
了解调查的目的和主要内容，以及抽样范围、方式、样本量等等基本信息，判断该数据属于哪种数据结构。下载调查的问卷，详细了解调查有哪些具体的信息。
首先确定自己感兴趣的问题，然后到问卷中去寻找。或者先看问卷，找到自己感兴趣的具体信息。下载相应数据，进行初步的数据清理和统计分析
(待上机课之后）为期末的研究项目做准备。
Zhaopeng Qu (Nanjing University) Introduction to Econometrics
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OutlinesIntroduction: A Scientific Framework of Rational
KnowledgeInteresting and Important QuestionsA Scientific Framework
to Analysis
What is Econometrics?DefinitionsEconometrics, Social Science and
Big Data.
Why and who should take the course? Why important? For
Whom?Direction and Attitude
Logistics to the CourseThe Structure of Economic Data Types of
Data(II): StructureTypes of Data(II)
Homework(not required)
