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.
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.).
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
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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