# ie_LEC01 - Introductory Econometrics ECON2206/ECON3209...

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Introductory Econometrics ECON2206/ECON3209 Week 1 INTRODUCTION Chapter 1 Wooldridge ie_Slides01 R. Ouysse, School of Economics, UNSW 1

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1. Introduction 1. Introduction • What is econometrics? – It covers the statistical methods useful for • estimating economic relationships; • testing economic theories; • evaluating policies; • forecasting economic variables, based on data (observations on variables). eg. Estimating and testing the effect of – education on wages; – minimum wages on unemployment; – govt policies on inflation and growth; ie_Slides01 R. Ouysse, School of Economics, UNSW 2 – school spending on student performance; etc.
1. Introduction (Ch1) • What is econometrics? – Differing from statistics used in physical sciences, it deals with non-experimental data. • Data are typically not from controlled experiments. Ideal “laboratories” are not available in social sciences. eg. The effect of a new drug on patients: possible to assign drug randomly to patients. Effect of a interest-rate-rise on economies: impossible to assign a rate-rise randomly to pg y economies. ie_Slides01 R. Ouysse, School of Economics, UNSW 3

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1. Introduction (Ch1) • Empirical economic analysis – Exploring data to estimate economic relationships and test economic theories. – It involves • embedding the questions of interest in an econometric model, which may be derived from economic theories; • formulating the questions of interest into hypothesis about the parameters of the model; stimating the parameters and drawing conclusions estimating the parameters and drawing conclusions about the hypotheses from data; • in some cases, making predictions based on the estimated model. – It helps in business or government decision making. ie_Slides01 R. Ouysse, School of Economics, UNSW 4
1. Introduction (Ch1) • Empirical economic analysis eg. A model for wage: wage = β 0 + β 1 educ + β 2 exper + u, where wage : hourly wage, educ : years of education, exper : years of employment, u : disturbance term that contains excluded factors (innate ability, job characteristics, . ..), β , β , β : 0 1 2 parameters describing how wage is affected by the included factors. ie_Slides01 R. Ouysse, School of Economics, UNSW 5

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1. Introduction (Ch1) • Empirical economic analysis eg. Continue with the model wage = β 0 + β 1 educ + β 2 exper + u . – a range of hypotheses can be formulated in terms of the β parameters; – econometric methods can be used to estimate the parameters from data; – the hypotheses then can be tested based on the estimated parameters; – the estimated model can also be used to make redictions about wages predictions about wages. ie_Slides01 R. Ouysse, School of Economics, UNSW 6
1. Introduction (Ch1) • Data structures – Empirical analysis requires data.

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## This note was uploaded on 02/29/2012 for the course ECON 2206 taught by Professor Yang during the One '11 term at University of New South Wales.

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ie_LEC01 - Introductory Econometrics ECON2206/ECON3209...

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