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Econ 103

by: kodasbigmove

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Lecture Slides
Class Notes
Economics, Econometrics, ECONOMETIRCS, Statistics, Econ, econ103
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This 24 page Class Notes was uploaded by kodasbigmove on Thursday April 21, 2016. The Class Notes belongs to Econ 103 at University of California - Los Angeles taught by Rojas in Spring 2015. Since its upload, it has received 17 views. For similar materials see Econometrics in Economcs at University of California - Los Angeles.


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Date Created: 04/21/16
Lecture Note 2: A Short Introduction to Econometrics Rodrigo UCLA March 28, 2016 Topics to Discuss 1 Why Study Econometrics 2 What is Econometrics About 3 The Econometric Model 4 How Are Data Generated 5 Economic Data Types 6 The Research Process 7 Writing An Empirical Research Paper 8 Sources of Economic Data Why Study Econometrics Econometrics ▯lls a gap between being a \student of economics" and being a \practicing economist" Econometrics is about how to use theory and data from economics, business, and the social sciences, along with tools from statistics, to answer \how much" questions. Helps you develop \intuition" about how things work and is invaluable if you go to graduate school Why Study Econometrics In economics we express our ideas about relationships between economic variables using the mathematical concept of a function Consumption: C = f (ncome ) d s c Demand: Q = f (,P ,P ,Income ) ▯ ▯ Supply: Q s = f P,P ,P f where: 1 P is the price of the good, 2 s P is the price of a substitute good, 3 P is the price of a relevant complement good, 4 P is the price of input factors The Econometric Model An econometric model consists of a systematic part and a random and unpredictable component, say e, that we will call a random error d s c Q = f (,P ,P ,Income ) + e s c s c f (,P ,P ,Income )= b 1+ b2P + b3P + b4P + b5Income+ e So, d s c Q = b1+ b2P + b3P + b4P + b5Income + e The Econometric Model The coe▯cients b , b , b , b , and b are unknown parameters of the 1 2 3 4 5 model that we estimate using economic data and an econometric technique The functional form represents a hypothesis about the relationship between the variables In any particular problem, one challenge is to determine a functional form that is compatible with economic theory and the data The Econometric Model The systematic portion is the part we obtain from economic theory, and includes an assumption about the functional form The random component represents a \noise" component, which obscures our understanding of the relationship among variables, and which we represent using the random variable e The Econometric Model We use the econometric model as a basis for statistical inference The ways in which statistical inference is carried out include: 1 Estimating economic parameters, such as elasticities, using econometric methods 2 Predicting economic outcomes 3 Testing economic hypotheses The Data Generating Process We must have some data. So, Where do data come from? What type of real processes generate data? Economists and other social scientists work in a complex world in which data on variables are \observed" and are rarely obtained from a controlled experiment This makes the task of learning about economic parameters all the more di▯cult The Data Generating Process One way to acquire information about the unknown parameters of economic relationships is to conduct or observe the outcome of an experiment Such controlled experiments are rare in business and the social sciences There are some examples of planned experiments in the social sciences A notable example of a planned experiment is Tennessee’s Project STAR The Data Generating Process An example of nonexperimental data is survey data Data on all variables are collected simultaneously, and the values are neither ▯xed nor repeatable Economic Data Types Time-Series data Cross-section data Panel (or longitudinal) data Economic Data Types A time-series is data collected over discrete intervals of time The key feature of time-series data is that the same economic quantity is recorded at a regular time interval Economic Data Types Time-Series Data Table 1.1: Annual GDP in 2005 Dollars Economic Data Types Time-Series Data Figure 1.1: U.S. Real Annual GDP 1980-2008 Economic Data Types Cross-Section Data A cross-section of data is collected across sample units in a particular time period The \sample units" are individual entities and may be: ▯rms, persons, households, states, or countries Economic Data Types Cross-Section Data Table 1.2: Cross Section Data{CPS for August 2009 Economic Data Types Panel (Longitudinal) Data A \panel" of data, also known as \longitudinal" data, has observations on individual micro-units who are followed over time The key aspect of panel data is that we observe each micro-unit for a number of time periods If we have the same number of time period observations for each micro-unit, we have a balanced panel Usually the number of time series observations is small relative to the number of micro-units, but not always Economic Data Types Panel (Longitudinal) Data Table 1.3: Panel Data for Two Rice Farms The Research Process Econometrics is ultimately a research tool As students of econometrics you should be able to do research, or read and evaluate the research of others, or both Research is a process, and like many such activities, it ows according to an orderly pattern Research is an adventure, it is a form of art, and can be fun! The Research Process Steps in the research process: 1 Use economic theory to think about the problem 2 Develop an econometric model 3 Obtain sample data and choose a desirable method of statistical analysis based on initial assumptions and an understanding of how the data were collected 4 Estimate the unknown parameters, make predictions, and test hypotheses 5 Perform model diagnostics to check the validity of assumptions 6 Analyze and evaluate the economic consequences and the implications of the empirical results Policy Evaluation under Selection Bias Figure 2: Neighborhood Relocation by Voucher Assignment and Compliance Voucher Voucher Randomization Voucher Neighborhood Family Assignment Incentives Compliance Decision Count 81 % High-poverty (t ) h 1056 No Voucher 15 % Control (c ) No Incentives Medium-poverty (t m 199 1310 Families 1310 Families 4 % Low-poverty (l ) 44 31 % 85 % High-poverty (h ) 768 53 % Voucher Not Used 14 % Medium-poverty (t m 122 911 Families 1 % Randomization Experimental (ze) Low-poverty Low-poverty (l ) 12 4248 Families 41 % 1729 Families Neighborhoods Voucher Used 100 % Low-poverty (l ) 818 47 % 818 Families 9 28 % 86 % High-poverty (h ) 424 41 % Voucher Not Used 11 % Medium-poverty (t m 56 493 Families 3 % Medium or Low-poverty (t ) Section 8 (8 ) Low-poverty h 12 1209 Families Neighborhoods Voucher Used 86 % 59 % 716 Families Medium-poverty (t m 618 14 % Low-poverty (l ) 98 This figure describes the possible decision patterns of families in MTO that resulted from voucher assignment and family compliance. Families assigned to the control group could decide among three neighborhood choices: 1. High-poverty neighborhood stands for the choice of not relocating and continue living in the housing projects targeted at the onset of the experiment. Writing an Empirical Paper The process of writing forces the distillation of ideas In no other way will your depth of understanding be so clearly revealed Sources of Economic Data Economic data are much easier to obtain since the development of the World Wide Web Few useful links: Resources for Economists (RFE) National Bureau of Economic Research (NBER) Current Population Survey American Community Survey American Housing Survey National Longitudinal Survey Panel Study of Income Dynamics EconEdLink Economagic


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