econometrics ch 1 - Introduction to Econometrics...

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Unformatted text preview: Introduction to Econometrics Introduction to Econometrics Econ 322, Section 02 Fall, 2010 Geo rey Williams gwilliams@econ.rutgers.edu August 29, 2010 Geo rey Williams gwilliams@econ.rutgers.edu Introduction to Econometrics Econ 322, Section 02 Fall, 20 Introduction to Econometrics Introduction The study of econometrics is completely intertwined with the study of economics . The two subjects cannot exist without the other. Econometrics is the application of statistical methods to economic data. More importantly, econometrics helps bring empirical observation to bear on economic theory. As we will see during this course, economic theory help us develop models of economic behavior while econometrics help us take these models to data and test our theories. Econometrics also help us nd empirical regularities that need to be explained. Geo rey Williams gwilliams@econ.rutgers.edu Introduction to Econometrics Econ 322, Section 02 Fall, 20 Introduction to Econometrics Example: Downward-sloping Demand For example, consider the empirical observation that demand for a normal good increases as its price declines. This is an empirical observation. This observation led to the theory of utility and demand that you learned in your introductory economic classes. In this theory, the demand for a normal good in inversely related to its price. This is an example of empirical observation leading theory. The role of econometrics was to nd empirical regularities (sometimes called stylized facts ) from our observation of the world. Geo rey Williams gwilliams@econ.rutgers.edu Introduction to Econometrics Econ 322, Section 02 Fall, 20 Introduction to Econometrics Introduction (cont) Another role for econometrics is in testing theory. That is, suppose that utility theory and therefore the theory of demand was rst a theoretical result. In order for a new theory to be taken seriously, its predictions need to be tested. To do this, an econometrician would go out and collect some data and then use this data to see if the predictions of the theory hold true. The purpose of this course is to introduce you to the tools needed to look at data and answer interesting economic questions. As we will see during this course, the nature of the subject and the data that we observe leads to interesting problems not commonly faced in other statistical problems....
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This note was uploaded on 01/22/2012 for the course ECONOMICS 220:322 taught by Professor Otusbo during the Fall '10 term at Rutgers.

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econometrics ch 1 - Introduction to Econometrics...

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