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Lecture 1 economic questions and the data

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  • 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