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Econometrics For MPM, LNotes 1

The document discusses econometrics, including defining it as measuring relationships between economic variables and testing economic theory using empirical data and quantitative methods. It outlines the typical steps in an econometric analysis as specification, estimation, evaluation of estimates, and evaluating a model's forecasting power. It also discusses types of data, sources of data, and collecting primary versus secondary data.

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Barkhad Hassan
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47 views13 pages

Econometrics For MPM, LNotes 1

The document discusses econometrics, including defining it as measuring relationships between economic variables and testing economic theory using empirical data and quantitative methods. It outlines the typical steps in an econometric analysis as specification, estimation, evaluation of estimates, and evaluating a model's forecasting power. It also discusses types of data, sources of data, and collecting primary versus secondary data.

Uploaded by

Barkhad Hassan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER ONE

1 Wolaita Sodo University


College of Business & Economics
Econometrics for MBA & MPM

Lecture notes for


Econometrics for MBA & MPM

Lambamo A. (Assis’t Prof.)


[email protected]

1
CHAPTER ONE

Introduction

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What is econometrics?
◼ Econometrics is defined as:
◼ Measuring relationships between economic, market,
demographic and organization behavioral variables
◼ Beyond the literal meaning:
◼ Testing/verifying theory
◼ Estimating behavioral relationships
◼ Provision of empirical content to theory
◼ Therefore, Econometrics is:
◼ The integrated application of theory and quantitative
methods to the analysis of economic, social, demographic,
market and organizational data with empirical
measurement of phenomena.
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Cont’d…

◼ Three important components in enquiry analysis are:


◼ Theory, Data and Methodology (analysis techniques)
◼ How is the analysis of problems carried out in practice
◼ Econometric methodology/approach
◼ Empirical analysis: the use of data to test a theory or to
estimate behavioral relationship

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Steps in empirical analysis

1) Specification
◼ Expressing behavioral relationship in
mathematical form.
This step involves the determination of:
▪ dependent(outcome) and covariates
(explanatory) variables in the model
▪ a priori theoretical expectations about
the size and sign of the parameters
▪ mathematical form of the model
◼ Should be based on theory and information
related to the phenomena

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2) Estimation of the Model

◼ Is obtaining numerical value for the


parameters of the relationship
◼ It requires knowledge of analysis methods,
assumptions & implications for the
estimates.
◼ In this stage the following activities
◼ Gathering data on the variables
◼ Examination of the degree of
correlation(multicollinearity)
◼ Choice of appropriate techniques for
estimation

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3) Evaluation of the estimates

◼ Checking whether the estimates are


theoretically consistent and statistically
reliable.
◼ Can be performed by Correlation
coefficient test, se- test, t-test, F-test)

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4) Evaluating forecasting power of Model

◼ The model may be meaningful and econometrically


correct
◼ Involves the investigation of the stability of the
estimates and their sensitivity to changes in the size of
the sample.
◼ Desirable properties of an econometric model
◼ Theoretical Plausibility:- compatible with theory
◼ Explanatory ability:- able to explain observation of the actual
world
◼ Accuracy of estimates:- should possess desirable property
◼ Forecasting ability:- should be able to predict future value
◼ Simplicity- simpler mathematical form

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Source & Methods Of Data Collection

◼ Data are facts or information used as a base for


analysis
◼ Example: Loan secured by borrowers – credit
survey data
◼ Socio-economic data:- age, sex, marital status,
religion, household income level, household
saving status, household consumption,
◼ Performance information(data)

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Types of data

◼ Cross section, Time Series and Panel


1)Cross-sectional data
◼ Consists of a sample of individuals, households, firms,
organizations, cities, etc. taken at a given point in time
◼ they can be obtained by deferent sampling procedure from
the underlying population
◼ Personal data
◼ Demographic and Socio-economic characteristics
▪ Age, sex, marital status, education, family size,
income, saving status, consumption, race, religion….
◼ Behavioral data
▪ Attitude, opinion, perception, practices, etc…
◼ Organizational data, territorial data
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◼ Time series data
◼ Consists of observation on a variable or several variables
over time
◼ Examples: stock prices, money supply, exchange rates,
consumer prices, GDP
◼ Panel or longitudinal data
◼ Consists of a time series for each cross-sectional member in
the data set
◼ An example: wage, education, and employment history for a
set of individuals followed over a ten-year period
◼ The key feature of panel data that distinguishes it from a
pooled cross section is the fact that the same cross-sectional
units (individuals, firms, or countries) are followed over a
given time period

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Sources of Data

◼ Two types: Primary and secondary


1. Primary sources
◼ Original, first hand information can obtained
through questionnaire, face to face interview,….
◼ Advantages
◼ Up to date information
◼ More accurate
◼ Specific in nature

◼ Disadvantages
◼ High economic cost
◼ Less coverage of area
◼ Depends on the researcher 12
2. Secondary sources
◼ Already collected by somebody
◼ Published & unpublished data
❖ Advantages
◼ Can be quickly and cheaply obtained
◼ Wider geographic area and longer reference period with least cost
❖ Disadvantages
◼ Data may not meet our specific needs
◼ May not be accurate as desired
◼ Not up to date information and become obsolete
◼ Information about the sources may not be available
◼ Uses
Reference purposes
Used as bench marks
Sources of information for a researcher
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