Scribd
Upload
1K views23 pages

Ecotrix

The document provides 5 definitions for econometrics from various authors between 1968-1971. It then discusses why econometrics emerged as a separate discipline from economic theory, mathematics, and statistics. The key aspects of econometrics include empirically testing economic theories and hypotheses using statistical methods on economic data. The document outlines the steps in the methodology of econometrics, including specifying an economic model, collecting data, estimating models, testing hypotheses, and using models to forecast and evaluate policy.

Uploaded by

Danish Shaikh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
1K views23 pages

Ecotrix

The document provides 5 definitions for econometrics from various authors between 1968-1971. It then discusses why econometrics emerged as a separate discipline from economic theory, mathematics, and statistics. The key aspects of econometrics include empirically testing economic theories and hypotheses using statistical methods on economic data. The document outlines the steps in the methodology of econometrics, including specifying an economic model, collecting data, estimating models, testing hypotheses, and using models to forecast and evaluate policy.

Uploaded by

Danish Shaikh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 23

Operational Research Presentation

Group 8: Srijita Agarwal (5) Schuyler D souza (9) Chandana Rayachoti (41) Danish Shaikh (52)

What is Ecotrix?
 Definition 1: Economic Measurement  Definition 2: Application of the
mathematical statistics to economic data in order to lend empirical support to the economic mathematical models and obtain numerical results (Gerhard Tintner, 1968)

What is Ecotrix?  Definition 3: The quantitative analysis

of actual economic phenomena based on concurrent development of theory and observation, related by appropriate methods of inference

(P.A.Samuelson, T.C.Koopmans and J.R.N.Stone, 1954)

What is Ecotrix?
 Definition 4: The social science which applies economics, mathematics and statistical inference to the analysis of economic phenomena (By Arthur S. Goldberger,
1964)

 Definition 5: The empirical determination of economic laws (By H. Theil, 1971)

Economic Theory

Mathematical Economics

Economic Statistics

Mathematic Statistics

Why a separate discipline?


 Economic theory makes statements that are mostly qualitative in nature, while econometrics gives empirical content to most economic theory

 Mathematical economics is to express economic theory in


mathematical form without empirical verification of the theory, while econometrics is mainly interested in the later

Why a separate discipline?


 Economic Statistics is mainly concerned with collecting, processing and presenting economic data. It does not being concerned with using the collected data to test economic theories  Mathematical statistics provides many of tools for economic studies, but econometrics supplies the later with many special methods of quantitative analysis based on economic data

Why study Ecotrix?


 Economic Theory makes statements or hypotheses - Theories do not provide
the necessary measure of strength of relationship (numerical estimate of the relationship) & the proper functional relationship between variables

- Example: Law of Demand


A reduction in price of a commodity is expected to increase the quantity demanded of that commodity

 To provide empirical verification of theories

Objectives of Ecotrix
Formulation of econometrics models for:
- estimating the economic relationship - testing the validity of economic theories or hypotheses - evaluating government policy

Use the models for:


- predicting, forecasting - assess impacts of certain decisions & policy recommendation

Economic Model v/s Ecotrix Model


An economic model is a set of assumptions that approximately describes the behaviour of an economy Example: Law of Demand An econometric model consists of the following: 1. A set of behavioural equations derived from the economic model 2. A statement of whether there are errors of observation in the observed variables 3. A specification of the probability distribution of the disturbances

What Constitutes a Test of an Economic Theory


To report
- the signs of the estimated coefficients in an econometric model - the significance test of each variables / regression

To confirm economic theories


- whether the estimated coefficients carried the expected sign - the statistical significance of the variables - the fitness of the model

Methodology of Econometrics
1) Economic Theory 2) Mathematical Model of Theory 3) Econometric Model of Theory 4) Obtaining Data 5) Estimation of Econometric Model 6) Hypothesis Testing 7) Forecasting or Prediction 8) Using the Model for control or policy purposes

Economic Theory

Mathematic Model

Econometric Model

Data Collection

Estimation

Hypothesis Testing Application in control or policy studies

Forecasting

Methodology of Econometrics
(1) Statement of theory or hypothesis:
Keynes stated: Consumption increases as income increases, but not as much as the increase in income . It means that The marginal propensity to consume (MPC) for a unit change in income is greater than zero but less than unit

Methodology of Econometrics
(2) Specification of the mathematical model of the theory
Y = 1+ 2X ; 0 < 2< 1 Y= consumption expenditure X= income 1 and 2 are parameters; 1 is intercept, and 2 is slope coefficients

Methodology of Econometrics
(3) Specification of the econometric model of the theory
Y = 1+ 2X + u ; 0 < 2< 1; Y = consumption expenditure; X = income;
1 and 2 are parameters; 1is intercept and 2 is slope coefficients; u is disturbance term or error term. It is a random or stochastic variable

Methodology of Econometrics
(4) Obtaining Data
Y= Personal consumption expenditure X= Gross Domestic Product (all in Billion US Dollars)

Methodology of Econometrics
(4) Obtaining Data
Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 X 2447.1 2476.9 2503.7 2619.4 2746.1 2865.8 2969.1 3052.2 3162.4 3223.3 3260.4 3240.8 Y 3776.3 3843.1 3760.3 3906.6 4148.5 4279.8 4404.5 4539.9 4718.6 4838.0 4877.5 4821.0

Methodology of Econometrics
(5) Estimating the Econometric Model
Y^ = - 231.8 + 0.7194 X MPC was about 0.72 and it means that for the sample period when real income increases 1 USD, led (on average) real consumption expenditure increases of about 72 cents Note: A hat symbol (^) above one variable will signify an estimator of the relevant population value

Methodology of Econometrics
(6) Hypothesis Testing
Are the estimates accord with the expectations of the theory that is being tested? Is MPC < 1 statistically? If so, it may support Keynes theory. Confirmation or refutation of economic theories based on sample evidence is object of Statistical Inference (hypothesis testing)

Methodology of Econometrics
(7) Forecasting or Prediction
 With given future value(s) of X, what is the future value(s) of Y?  GDP=$6000Bill in 1994, what is the forecast consumption expenditure?  Y^= - 231.8+0.7196(6000) = 4084.6  Income Multiplier M = 1/(1 MPC) (=3.57). Decrease ( or increase) of $1 in investment will eventually lead to $3.57 decrease ( or increase) in income

Methodology of Econometrics
(8) Using model for control or policy purposes
Y=4000= -231.8+0.7194 X X b 5882 MPC = 0.72.

Conclusion & Inference: An income of $5882 will produce an


expenditure of $4000. By fiscal and monetary policy, Government can manipulate the control variable X to get the desired level of target variable Y

You might also like