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Unformatted text preview: Inclass exerciseRandom variableX=xiProbabilityf(xi)=pi= P(X=xi)pdfx1= 1 0.70x2= 0 x3= 1 0.30 ?= 1?What is the E(X), E(2X3)? What is the Var(X), Var(2x3)? Inclass exerciseFind the correlation coefficient between X and aX, where X is any random variable and a is a constant. THE NATURE OF ECONOMETRICS AND ECONOMIC DATAOUTLINE 1.What is Econometrics? 2.Steps in Empirical Economic Analysis 3.Examples 4.Economic Data 5.Causality and the notion of Ceteris Paribus 1. WHAT IS ECONOMETRICS?Combination of statistical methods, economicsand datato answer empirical questions in economics. There are many different types of empirical questionsin economics. Some examples: Forecasting:Use current and past economic data to predict future values of variables such as inflation, GDP, stock prices, etc. Testing economic theories: Test of the efficiency of the Stock Exchange  Test the Capital Asset Pricing Model (CAPM) 1. WHAT IS ECONOMETRICS?Estimation of economic relationships: Demand and supply equations;  Production functions;  Wage equations, etc. Evaluating government policies: Employment effects of an increase in the minimum wage;  Effects of monetary policy on inflation. Evaluating business policies: Estimate the optimal price and advertising expenditure for a new product;  Compare profits under two pricing policies.  Evaluate the effectiveness of a job training program. Econometrics is relevant in virtually every branch of applied economics: finance, labor, health, industrial, macro, development, international, trade, marketing, strategy, etc. There are two important features which distinguish Econometrics from other applications of statistics: 1.Economic data is nonexperimental data. We cannot simply classify individuals or firms in an experimental groupand a control group. Individuals are typically free to selfselect themselves in a group (e.g., education, occupation, product market, etc). 2.Economic models(either simple or sophisticated) are key to interpret the statistical results in econometric applications1. WHAT IS ECONOMETRICS? 2. STEPS IN EMPIRICAL ECONOMIC ANALYSISThe research processin applied econometrics is not simply linear, but it has loops.That is, the original question and...
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This note was uploaded on 09/25/2011 for the course ECON 322 taught by Professor Francisco during the Spring '07 term at Rutgers.
 Spring '07
 Francisco

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