L2 - Econ 102B Introduction to Econometrics Winter 2011...

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Unformatted text preview: Econ 102B Introduction to Econometrics Winter 2011 Simple Linear Regression Model Matt Harding Stanford University mch@stanford.edu Agenda for today (01/06/11) Data and Quantities of Interest Linear Econometric Model Precision of the Model Gauss-Markov Theorem Sampling Variation Course Requirements Problem Set 1 due next Thursday. Last Time Studying Econometrics Gain knowledge about the world (explain/predict) Justification grounded in theory and empirics Using not abusing statistics Social world is very noisy and unstable and our observations are limited Conclusions are statistical not deterministic Be honest about the limits of experience Econometric Model Bivariate Linear Model Relationships Economics, history, sociology, psychology Suggest relationships between variables of interest We use an econometric model to estimate/test/ predict such a relationship Food consumption Reasons Fuel prices Biofuel production Weather shocks/Global warming Whats behind the index? Food and Income Sample households How much did you spend per person on food last week? We have 2 variables Y = Food (Dependent variable) X = Income (Independent variable) Random Variables Y(Food expenses), X(Income) are random until they are fixed through surveying for a specific household Take different values depending on where I sample Food consumption around the world Guatemala The Rodas family spends 40% of its income on food. 1 kilo of corn tortilla flour: $0.71 (35p) 1 litre of cooking oil: $1.95 (97p) 1 kilo of chicken: $4.28 (2.12) 1 kilo of potatoes: $ 4.40 (2.18) UK The Classick family spends 10% of its income on food. Loaf of bread: $2.50 (1.23) 1 litre of cooking oil: $1.60 (78p) 1 kilo of carrots: $1.25 (62p) 1 kilo of lamb: $18.60(9.24) India The Mhatre family spends 20% to 30% of its income on food. 1 kilo of chapati flour: $0.55 (27p) 1 litre of cooking oil: $2.20 (1.10) 1 kilo of chicken: $1.40 (70p) 1 kilo of beans: $1.04 (52p) Egypt The Abdulwahab family spends 80% of its income on food. Subsidised bread and cooking oil can be bought from government shops, but not in enough quantities to feed the family. 10 unsubsidised loaves of bread: $0.45 (22p) 10 subsidised loaves of bread: $0.09 (4.5p) 1 unsubsidised litre of cooking oil: $2.30 (1.15) 1 subsidised litre of cooking oil: $1.50 (75p) 1 kilo of lamb: $7.22 (3.60) 1 kilo tomatoes: $0.37 (18p) UNDERSTAND THE DATA Always start a project by looking at the data Figure 2.1a Probability distribution of food expenditure y given income x = $1000 Figure 2.1b Probability distributions of food expenditures y given incomes x = $1000 and x = $2000 The simple regression function (2.1) Figure 2.2 The economic model: a linear relationship between average per person food expenditure and income Slope of regression line denotes change in (2.2) Figure...
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This note was uploaded on 03/19/2011 for the course ECON 102B taught by Professor Harding,m during the Winter '11 term at Stanford.

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L2 - Econ 102B Introduction to Econometrics Winter 2011...

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