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Intrdouction To Econometrics

Econometrics is the application of statistical and mathematical methods to economic data in order to test economic theories and models. It involves using economic theories to build quantitative models that represent economic relationships. These models are then estimated using statistical methods applied to real-world economic data. The estimates obtained allow economists to evaluate economic policies and make predictions. Econometrics uses different types of data including cross-sectional data that measures variables across units at a point in time, time-series data that tracks variables over multiple time periods, and pooled or panel data that combines cross-sectional and time-series dimensions.

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66 views16 pages

Intrdouction To Econometrics

Econometrics is the application of statistical and mathematical methods to economic data in order to test economic theories and models. It involves using economic theories to build quantitative models that represent economic relationships. These models are then estimated using statistical methods applied to real-world economic data. The estimates obtained allow economists to evaluate economic policies and make predictions. Econometrics uses different types of data including cross-sectional data that measures variables across units at a point in time, time-series data that tracks variables over multiple time periods, and pooled or panel data that combines cross-sectional and time-series dimensions.

Uploaded by

Awshib Bhandari
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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 TO

ECONOMETRICS

Naveen Adhikari

ECONOMETRICS
Econometrics , the result of a certain outlook on the
role of economics, consists of the application of
mathematical 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 of
statistical methods for estimating economic
relationships, testing economic theories, and
evaluating and implementing government and
business policy (Wooldridge, 2006)

INGREDIENTS..
Economic/Business Theories
Economic Models
Mathematical Exposition of the Models
Statistical Methods to estimate those models

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.

ECONOMIC MODELS???

ECONOMIC MODELS

amodelis
atheoreticalconstruct
that
represents
economicprocessesby
a
set
ofvariablesand
a
set
oflogicaland/or
quantitative relationships between them. The
economicmodelis
a
simplified
framework
designed to illustrate complex processes, often
but not always using mathematical techniques
(http://en.wikipedia.org/wiki/Economic_model)

ECONOMIC MODELS
Exposition of Behavior of Economic Agents
Expressed by some causal relationship (explained
by economic theories) in qualitative/quantitative
form
Expressed by equations or system of equations
Simplification of complex economic phenomena
Lists of Assumptions

TYPES OF ECONOMIC MODELS


Quantitative Vs. Qualitative
Deterministic Vs. Stochastic

STOCHASTIC

Stochastic modelsare formulated usingstochastic


processes. They model economically observable values
over
time.
Most
ofeconometricsis
based
onstatisticsto formulate and test hypothesesabout
these processes or estimate parameters for them. A
widely used class of econometric models popularized
byTinbergenand
laterWoldareautoregressivemodels, in which the
stochastic process satisfies some relation between
current and past values. Examples of these
areautoregressive moving average modelsand
related ones such asautoregressive conditional
heteroskedasticity(ARCH) andGARCHmodels for
the
modelling
ofheteroskedasticity
(
http://en.wikipedia.org/wiki/Economic_model )

NON-STOCHASTIC

Non-stochastic mathematical modelsmay be


purely qualitative (for example, models involved in
some aspect ofsocial choicetheory) or quantitative
(involving rationalization of financial variables, for
example withhyperbolic coordinates, and/or specific
forms offunctional relationshipsbetween variables).
In some cases economic predictions of a model
merely 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 that
item will decrease. For such models, economists
often use two-dimensional graphs instead of
functions (
http://en.wikipedia.org/wiki/Economic_model )

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 Testing
Forecasting or Prediction
Using The model for control or policy purposes
(Gujrati, 2007)

TYPE OF DATA
Cross Section
Time Series
Pooled and Panel Data

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 Household
Budget Survey, Other Household Surveys (eg
Thesis)

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.

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.

THANK YOU

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