326_01_intro

326_01_intro - Economics 326 Methods of Empirical Research...

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Economics 326 Methods of Empirical Research in Economics Lecture 1: Introduction Hiro Kasahara University of British Columbia January 4, 2010
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What is Econometrics? Econometrics is concerned with the development of statistical methods for: I Estimating and Testing of economic theories. I Forecasting of important economic variables. I Evaluation of government and business policy. For example, I The e/ect of political campaign expenditures on voting outcomes. I The e/ect of school spending on student performance. I The e/ect of R&D subsidy on ±rm²s productivity. I Nonexperimental data vs. Experimantal data. 1³10
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Empirical Economic Analysis I Economic theory is used to construct models characterizing relationships between variables of interest. I However, economic models are only approximations . I A model can take into account a number of important factors, but there will be many factors left out that also a/ect outcomes. I We therefore replace the exact ( deterministic ) model with a probabilistic model. 2±10
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Example 1.1: Becker&s (1968) economic model of crime Economic Model: the reward from property crime vs. the cost y = f ( x 1 , x 2 , x 3 , x 4 , ... ) y = hours spent in criminal activities (crime) x 1 = ±wage²for an hour spent in criminal activities x 2 = hourly wage in legal employment (wage m ) x 3 =
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326_01_intro - Economics 326 Methods of Empirical Research...

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