Intrdouction to Econometrics

7/25/2019 Intrdouction to Econometrics

1/16

INTRODUCTION TO

ECONOMETRICS

Naveen Adhikari

7/25/2019 Intrdouction to Econometrics

2/16

ECONOMETRICS

Econometrics , the result of a certain outlook on the

role of economics, consists of the application ofmathematical 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 ofstatistical methods for estimating economic

relationships, testing economic theories, and

evaluating and implementing government and

business policy (Wooldridge, 2006)

7/25/2019 Intrdouction to Econometrics

3/16

INGREDIENTS..

Economic/Business Theories

Economic Models

Mathematical Exposition of the Models

Statistical Methods to estimate those models

7/25/2019 Intrdouction to Econometrics

4/16

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.

7/25/2019 Intrdouction to Econometrics

5/16

ECONOMIC MODELS???

7/25/2019 Intrdouction to Econometrics

6/16

ECONOMIC MODELS

amodelis a theoretical construct that

represents economic processes by a set

of variables and a set of logical and/or

quantitative relationships between them. The

economic model is a simplified frameworkdesigned to illustrate complex processes, often

but not always using mathematical techniques

(http://en.wikipedia.org/wiki/Economic_model)

7/25/2019 Intrdouction to Econometrics

7/16

ECONOMIC MODELS

Exposition of Behavior of Economic AgentsExpressed by some causal relationship (explained

by economic theories) in qualitative/quantitative

form

Expressed by equations or system of equationsSimplification of complex economic phenomena

Lists of Assumptions

7/25/2019 Intrdouction to Econometrics

8/16

TYPES OF ECONOMIC MODELS

Quantitative Vs. Qualitative

Deterministic Vs. Stochastic

7/25/2019 Intrdouction to Econometrics

9/16

STOCHASTIC

Stochastic modelsare formulated using stochastic

processes. They model economically observable valuesover time. Most of econometrics is based

on statistics to formulate and test hypotheses about

these processes or estimate parameters for them. A

widely used class of econometric models popularized

by Tinbergen andlater Wold are autoregressive models, in which the

stochastic process satisfies some relation between

current and past values. Examples of these

are autoregressive moving average models and

related ones such asautoregressive conditionalheteroskedasticity(ARCH) andGARCHmodels for

the modelling ofheteroskedasticity (

http://en.wikipedia.org/wiki/Economic_model)

7/25/2019 Intrdouction to Econometrics

10/16

NON-STOCHASTIC

Non-stochastic mathematical modelsmay be

purely qualitative (for example, models involved insome aspect of social choice theory) or quantitative

(involving rationalization of financial variables, for

example with hyperbolic coordinates, and/or specific

forms of functional relationships between variables).

In some cases economic predictions of a modelmerely 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 thatitem will decrease. For such models, economists

often use two-dimensional graphs instead of

functions (

http://en.wikipedia.org/wiki/Economic_model)

7/25/2019 Intrdouction to Econometrics

11/16

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 TestingForecasting or Prediction

Using The model for control or policy purposes

(Gujrati, 2007)

7/25/2019 Intrdouction to Econometrics

12/16

TYPE OF DATA

Cross Section

Time Series

Pooled and Panel Data

7/25/2019 Intrdouction to Econometrics

13/16

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 HouseholdBudget Survey, Other Household Surveys (eg

Thesis)

7/25/2019 Intrdouction to Econometrics

14/16

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.

7/25/2019 Intrdouction to Econometrics

15/16

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.

7/25/2019 Intrdouction to Econometrics

16/16

THANK YOU