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Topic 1: Introduction and Nature of Regression AnalysisECN702Sem Econometrics
Learning ObjectivesAt the end of this topic, you should be able to:oExamine the Subject Matter and Discipline ofEconometrics.oEvaluate the various types and methodology ofEconometrics.oExamining the Historical Origin and ModernInterpretation of Regression.oPreview the nature and sources of data foreconomic analysis.oRe-Visiting the Mathematical and StatisticalPrerequisites.Gujarati. And Porter (2009). Basic Econometrics. 5th Edition. Chapter 1,McGraw-Hill.2
What is Econometrics?Econometrics:deals with the measurement of economic relationships.is an integration of economics, mathematical economicsand statistics with an objective to provide numerical valuesto the parameters of economic relationships.is a quantitative analysis of actual economic phenomenabased on the concurrent development of theory anddata.is concerned with empirical determination of empiricallaws.allows us to depict the random behaviour of economicrelationships.Gujarati. (2008). Basic Econometrics. 4th Edition. Chapter 1, McGraw-Hill.3
Why Econometrics?it provides the tools to enable us to extract usefulinformation about important economic policy issuesfrom the available data.Helps build and evaluate models that are impossible tomodel physically.Modelreal-lifeissuessuchas:towhatextentgovernment policies affect individual decision making,how to model and predict economic recessions, orestimate the probability of a total failure of a market.Gives empirical content to most of the economictheory.Gujarati. (2008). Basic Econometrics. 4th Edition. Chapter 1, McGraw-Hill.4
Difference between Economistsand EconometriciansEconomistsdevelopeconomicmodelstoexplainconsistently recurring relationships. Their models linkone or more economic variables to other economicvariables.Econometricians:useseconomictheory,mathematics,andstatisticalinference to quantify economic phenomena.turns theoretical economic models into useful tools foreconomic policymakingconvertqualitativestatementsintoquantitativestatements(suchas“consumptionexpenditureincreases by 95 cents for every one dollar increase indisposableincome”).Gujarati. (2008). Basic Econometrics. 4th Edition. Chapter 1, McGraw-Hill.5
Two major types ofEconometricsTheoreticalEconometricsVS AppliedEconometricsTheoretical econometrics is concerned with thedevelopment of appropriate methods formeasuring economics relationships specified byeconomic mode. It relied heavily onMathematical statisticsApplied econometrics uses tools of theoreticaleconometrics to study some special field(s) ofeconomic and business, such as the productionfunction, demand and supply function, etcGujarati. (2008). Basic Econometrics. 4th Edition. Chapter 1, McGraw-Hill.

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