Section0 - SECTION 0 WHAT IS ECONOMETRICS 1 ECON 140...

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1 S ECTION 0: W HAT I S E CONOMETRICS ? 1 ECON 140: E CONOMIC S TATISTICS AND E CONOMETRICS , 101 AND 104 DIS H EDVIG H ORVÁTH Spring 2011 1. W HAT I S E CONOMETRICS ? “the science and art of using economic theory and statistical techniques to analyze economic data” (SW p. 1) Econometric methods are also used in other social sciences such as political science or psychology. However, a lot of econometric tricks is borrowed from biometrics and epidemiology. 2. S TEPS IN E MPIRICAL (E CONOMIC ) A NALYSIS 1. “careful formulation of the question of interest” (Wooldridge, p.2) a. Causality : “what is the causal effect of something on some other thing? Ideally (“benchmark”), this needs randomized controlled experiments . In reality is often problematic – e.g. the effect of wearing seat belts on highway traffic deaths… b. Prediction : forecasting future (or other unknown) values based on past (observed) ones; or, testing models by analyzing their fit to data To answer these types of questions we do not need to prove causal
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