Syllabus_FirstDay

Syllabus_FirstDay - Econ 120B Econometrics II Aren...

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Econ 120B Econometrics II Aren Megerdichian University of California, San Diego Summer Session II, 2009
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120B: Econometrics II Let’s go over what this class is about.
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Overview of this Course In this course we will use linear statistical methods to analyze the relationship among economic variables. E.g., suppose you believe there is a (linear) relationship between how much money a person makes and the amount of education they have. Consider the equation Wage = a + b*Education Parameters “a” and “b” are the intercept and slope, respectively.
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Overview – Cont’d Person Wage Education Joe $20 12 Sue $28 16 Bob $65 19 Jim $12 11 Kim $48 18 We can estimate the Wage-Education line if we had some data. For simplicity, consider this small (fictitious) sample of data on 5 working adults. Wage is in dollars per hour; Education is in years (e.g., 12 = completed high school, 16 = completed college, etc.).
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Overview – Cont’d $0 $10 $20 $30 $40 $50 $60 $70 10 12 14 16 18 20 Education (in years) Wage (per hour) So here we can see a positive relationship between Wage and Education. The more education you have, the more money you make.
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Overview – Cont’d We are interested in that line. A computer program (e.g., Excel or STATA) fit that line through our 5-person sample of data. What criteria did the program use? Ordinary Least Squares (OLS) • Basically, the process of fitting a line through a sample of data with OLS is called regression analysis. For Wage = a + b*Education, the value of b is 5.70 according to the OLS regression results. This means that an additional year of education results in $5.70 in additional wages per hour. I.e., the slope of that line is 70 . 5 $ = Educ Wage
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Overview – Cont’d As economists, we might also be interested in investigating the following relationships: GDPGrowth = a + b*InterestRates LifeExpectancy = a + b*Income QtyDemand = a + b*Price ProfitMargin = a + b*CompanySize In each case, can you make an educated guess as to what “sign” (i.e., + or -) the coefficient “b” ought to be?
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Overview – Cont’d Consider again Wage = a + b*Education . This is a single variable (univariate) equation.
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Syllabus_FirstDay - Econ 120B Econometrics II Aren...

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