1.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Introduction to Econometrics
Economic Questions and Data
Carlos A. Mendez Guerra
Graduate School of International Development
Nagoya University
August 6, 2010
Carlos Mendez (GSID) Econometrics: Lecture 1
2.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Outline
1 What is Econometrics?
Carlos Mendez (GSID) Econometrics: Lecture 1
3.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Outline
1 What is Econometrics?
2 The LAB of Social Sciences
Carlos Mendez (GSID) Econometrics: Lecture 1
4.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Outline
1 What is Econometrics?
2 The LAB of Social Sciences
3 The Methodology of Econometrics
Carlos Mendez (GSID) Econometrics: Lecture 1
5.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Outline
1 What is Econometrics?
2 The LAB of Social Sciences
3 The Methodology of Econometrics
4 The Structure of the Data
Carlos Mendez (GSID) Econometrics: Lecture 1
6.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Economic Questions
Relationships and Magnitudes
Economics suggests relationships, but not quantitative magnitudes
of causal eﬀects.
Carlos Mendez (GSID) Econometrics: Lecture 1
7.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Economic Questions
Relationships and Magnitudes
Economics suggests relationships, but not quantitative magnitudes
of causal eﬀects.
What is the quantitative eﬀect of reducing class size on
student achievement?
Carlos Mendez (GSID) Econometrics: Lecture 1
8.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Economic Questions
Relationships and Magnitudes
Economics suggests relationships, but not quantitative magnitudes
of causal eﬀects.
What is the quantitative eﬀect of reducing class size on
student achievement?
How does another year of education change earnings?
Carlos Mendez (GSID) Econometrics: Lecture 1
9.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Economic Questions
Relationships and Magnitudes
Economics suggests relationships, but not quantitative magnitudes
of causal eﬀects.
What is the quantitative eﬀect of reducing class size on
student achievement?
How does another year of education change earnings?
What is the price elasticity of cigarettes?
Carlos Mendez (GSID) Econometrics: Lecture 1
10.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Economic Questions
Relationships and Magnitudes
Economics suggests relationships, but not quantitative magnitudes
of causal eﬀects.
What is the quantitative eﬀect of reducing class size on
student achievement?
How does another year of education change earnings?
What is the price elasticity of cigarettes?
What is the eﬀect on output growth of a 1 percentage point
increase in inﬂation?
Carlos Mendez (GSID) Econometrics: Lecture 1
11.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Economic Questions
Relationships and Magnitudes
Economics suggests relationships, but not quantitative magnitudes
of causal eﬀects.
What is the quantitative eﬀect of reducing class size on
student achievement?
How does another year of education change earnings?
What is the price elasticity of cigarettes?
What is the eﬀect on output growth of a 1 percentage point
increase in inﬂation?
What is the eﬀect on housing prices of environmental
improvements?
Carlos Mendez (GSID) Econometrics: Lecture 1
12.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics
Definition
The application of statistical and mathematical methods to the
analysis of economic data, with the purpose of giving empirical
content to economic theories (verifying them or refuting them).
Carlos Mendez (GSID) Econometrics: Lecture 1
13.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Causal Effects and Idealized Experiments
Ideally, we would like an experiment
What would be an experiment to estimate the eﬀect of class
size on standardized test scores?
Carlos Mendez (GSID) Econometrics: Lecture 1
14.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Causal Effects and Idealized Experiments
Ideally, we would like an experiment
What would be an experiment to estimate the eﬀect of class
size on standardized test scores?
But almost always we only have observational
(nonexperimental) data.
Returns to Education, Cigarette Prices, Monetary policy
Carlos Mendez (GSID) Econometrics: Lecture 1
15.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Causal Effects and Idealized Experiments
Ideally, we would like an experiment
What would be an experiment to estimate the eﬀect of class
size on standardized test scores?
But almost always we only have observational
(nonexperimental) data.
Returns to Education, Cigarette Prices, Monetary policy
There are difficulties arising from using
observational to estimate causal effects
Carlos Mendez (GSID) Econometrics: Lecture 1
16.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Causal Effects and Idealized Experiments
Ideally, we would like an experiment
What would be an experiment to estimate the eﬀect of class
size on standardized test scores?
But almost always we only have observational
(nonexperimental) data.
Returns to Education, Cigarette Prices, Monetary policy
There are difficulties arising from using
observational to estimate causal effects
1 Confounding eﬀects (omitted factors)
Carlos Mendez (GSID) Econometrics: Lecture 1
17.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Causal Effects and Idealized Experiments
Ideally, we would like an experiment
What would be an experiment to estimate the eﬀect of class
size on standardized test scores?
But almost always we only have observational
(nonexperimental) data.
Returns to Education, Cigarette Prices, Monetary policy
There are difficulties arising from using
observational to estimate causal effects
1 Confounding eﬀects (omitted factors)
2 Simultaneous causality
Carlos Mendez (GSID) Econometrics: Lecture 1
18.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Causal Effects and Idealized Experiments
Ideally, we would like an experiment
What would be an experiment to estimate the eﬀect of class
size on standardized test scores?
But almost always we only have observational
(nonexperimental) data.
Returns to Education, Cigarette Prices, Monetary policy
There are difficulties arising from using
observational to estimate causal effects
1 Confounding eﬀects (omitted factors)
2 Simultaneous causality
3 Correlation does not imply Causation (Can be diﬃcult to
stablish causality)
Carlos Mendez (GSID) Econometrics: Lecture 1
19.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
Carlos Mendez (GSID) Econometrics: Lecture 1
20.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
Carlos Mendez (GSID) Econometrics: Lecture 1
21.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
Carlos Mendez (GSID) Econometrics: Lecture 1
22.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
3 Speciﬁcation of the STATISTICAL MODEL (Econometric
Model)
Carlos Mendez (GSID) Econometrics: Lecture 1
23.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
3 Speciﬁcation of the STATISTICAL MODEL (Econometric
Model)
4 Obtaining the DATA
Carlos Mendez (GSID) Econometrics: Lecture 1
24.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
3 Speciﬁcation of the STATISTICAL MODEL (Econometric
Model)
4 Obtaining the DATA
5 ESTIMATION of the parameters of the econometric model
Carlos Mendez (GSID) Econometrics: Lecture 1
25.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
3 Speciﬁcation of the STATISTICAL MODEL (Econometric
Model)
4 Obtaining the DATA
5 ESTIMATION of the parameters of the econometric model
6 Hypothesis TESTING
Carlos Mendez (GSID) Econometrics: Lecture 1
26.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
3 Speciﬁcation of the STATISTICAL MODEL (Econometric
Model)
4 Obtaining the DATA
5 ESTIMATION of the parameters of the econometric model
6 Hypothesis TESTING
7 Forecasting or PREDICTION
Carlos Mendez (GSID) Econometrics: Lecture 1
27.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Econometrics in 8 Steps
1 Statement of theory or hypothesis (RESEARCH QUESTION).
2 Speciﬁcation of the MATHEMATICAL MODEL of the theory
3 Speciﬁcation of the STATISTICAL MODEL (Econometric
Model)
4 Obtaining the DATA
5 ESTIMATION of the parameters of the econometric model
6 Hypothesis TESTING
7 Forecasting or PREDICTION
8 USING the model for control or policy purposes.
Carlos Mendez (GSID) Econometrics: Lecture 1
28.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Cross Sectional, Time Series and Panel Data
Carlos Mendez (GSID) Econometrics: Lecture 1
29.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Cross Sectional, Time Series and Panel Data
1 Cross Section: Multiple entities observed at a Single time
period.
Carlos Mendez (GSID) Econometrics: Lecture 1
30.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Cross Sectional, Time Series and Panel Data
1 Cross Section: Multiple entities observed at a Single time
period.
2 Time Series: Single entity observed at Multiple time periods.
Carlos Mendez (GSID) Econometrics: Lecture 1
31.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
Cross Sectional, Time Series and Panel Data
1 Cross Section: Multiple entities observed at a Single time
period.
2 Time Series: Single entity observed at Multiple time periods.
3 Longitudinal Data: Multiple entities where each entity is
observed at Multiple time periods.
Carlos Mendez (GSID) Econometrics: Lecture 1
32.
What is Econometrics?
The LAB of Social Sciences
The Methodology of Econometrics
The Structure of the Data
THANK YOU!
Carlos Mendez (GSID) Econometrics: Lecture 1
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