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Lec 01 Introduction

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17 views18 pages

Lec 01 Introduction

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Wensin Halim
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTRODUCTION

Zhufeng Xu

CUFE – 2024
WHAT IS ECONOMETRICS?

• Econometrics is the unified study of economic models, mathematical


statistics, and economic data.
• Econometric theory concerns the development of tools and methods,
and the study of the properties of econometric methods.
• Applied econometrics is a term describing the development of
quantitative economic models and the application of econometric
methods to these models using economic data.
THE PROBABILITY APPROACH TO ECONOMETRICS

• Haavelmo (1944) argued that quantitative economic models must


necessarily be probability models (by which today we would mean
stochastic)
• The appropriate method for a quantitative economic analysis follows
from the probabilistic construction of the economic model.
THE PROBABILITY APPROACH TO ECONOMETRICS

• Structural approach: A probabilistic economic model is specified,


and the quantitative analysis performed under the assumption that
the economic model is correctly specified.
• Likelihood-based analysis, including maximum likelihood and
Bayesian estimation
THE PROBABILITY APPROACH TO ECONOMETRICS

• Quasi-structural approach: inference views a structural economic


model as an approximation rather than the truth
• Pseudo-true value (the parameter value defined by the estimation
problem),
• Quasi-likelihood function, quasi-MLE, and quasi-likelihood
inference
THE PROBABILITY APPROACH TO ECONOMETRICS

• Semiparametric approach: A probabilistic economic model is


partially specified but some features are left unspecified
• Least squares
• Generalized method of moments
• The semiparametric approach dominates contemporary econometrics
THE PROBABILITY APPROACH TO ECONOMETRICS

• Calibration approach: interprets structural models as


approximations and hence inherently false
• The difference is that the calibrationist literature rejects mathematical
statistics and instead selects parameters by matching model and data
moments using non-statistical ad hoc1 methods.
ECONOMETRIC TERMS

• Data, dataset, or sample: a set of repeated measurements on a set of


variables
• Observations: distinct repeated measurements on the variables
ECONOMETRIC TERMS

• We denote variables by the italicized roman characters Y, X, and/or Z


• We make an exception for equation errors which we typically denote
by the lower case letters e, u, or v.
• Vectors (elements of Rk ) are typically also written using lower case
italics such as x, or using lower case bold italics such as x
• Matrices are written using upper case bold italics such as X
OBSERVATIONAL DATA

• Experimental data
• Observational data
• From observational data it is difficult to infer causality as we are not
able to manipulate one variable to see the direct effect on the other

Remark (Observational Data)


Most economic data sets are observational, not experimental. This means
that all variables must be treated as random and possibly jointly determined.
STANDARD DATA STRUCTURES

• Cross-sectional data sets have one observation per individual


• Surveys and administrative records are a typical source for
cross-sectional data
• In typical applications, the individuals surveyed are per- sons,
households, firms, or other economic agents.
STANDARD DATA STRUCTURES

• Time series data are indexed by time


• Typical examples include macroeconomic aggregates, prices, and
interest rates
• This type of data is characterized by serial dependence
STANDARD DATA STRUCTURES

• Panel data combines elements of cross-section and time series


• These data sets consist of a set of individuals (typically persons,
households, or corporations) measured repeatedly over time
• The common modeling assumption is that the individuals are
mutually independent of one another, but a given individual’s
observations are mutually dependent
• An important issue in econometric panel data is the treatment of error
components
STANDARD DATA STRUCTURES

• In clustered sampling the observations are grouped into “clusters”


which are treated as mutually independent yet allowed to be
dependent within the cluster
• The major difference with panel data is that clustered sampling
typically does not explicitly model error component structures, nor the
dependence within clusters, but rather is concerned with inference
which is robust to arbitrary forms of within-cluster correlation
STANDARD DATA STRUCTURES

• Spatial dependence is another model of interdependence


• Unlike clustering, spatial models allow all observations to be
mutually dependent, and typically rely on explicit modeling of the
dependence relationships
• Spatial dependence can also be viewed as a generalization of time
series dependence
STANDARD DATA STRUCTURES

Definition (Sample)
The variables (Yi , Xi ) are a sample from the distribution F if they are
identically distributed with distribution F.
STANDARD DATA STRUCTURES

Definition (Random sample)


The variables (Yi , Xi ) are a random sample if they are mutually independent
and identically distributed (i.i.d.) across i= 1, ⋯, n.

• we think of an individual observation (Yi , Xi ) as a realization from a


joint probability distribution F(y, x) which we call the population
• This “population” is infinitely large
ECONOMETRIC SOFTWARE

• Stata
• MATLAB
• R
• Python
• Julia
• Fortran or C

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