Observational Data
A common econometric question is to quantify the impact of one set of variables on another variable. For example, a concern in labor economics is the returns to schooling the change in earnings induced by increasing a workers education,
Sources for Economic Data
Fortunately for economists, the internet provides a convenient forum for dissemination of economic data. Many large-scale economic datasets are available without charge from governmental agencies. An excellent starting point is t
Conditional Expectation Function
An important determinant of wage levels is education. In many empirical studies economists measure educational attainment by the number of years of schooling, and we will write this variable
as education.
The conditional m
CEF Error
The CEF error e is defined as the difference between y and the CEF evaluated at the random vector x: e = y m(x).
By construction, this yields the formula y = m(x) + e. (2.11)
It is useful to understand that the error e is derived from the joint
Standard Data Structures
There are three major types of economic data sets: cross-sectional, time-series, and panel. They are distinguished by the dependence structure across observations. Cross-sectional data sets have one observation per individual. Sur
The unifying methodology of modern econometrics was articulated by Trygve Haavelmo (1911-1999) of Norway, winner of the 1989 Nobel Memorial Prize in Economic Sciences, in his seminal
paper The probability approach in econometrics, Econometrica (1944).
Ha
ECONOMETRICS
The term econometrics is believed to have been crafted by Ragnar Frisch (1895-1973) of Norway, one of the three principle founders of the Econometric Society, first editor of the journal Econometrica, and co-winner of the first Nobel Memorial
Econometric Terms and Notation
In a typical application, an econometrician has a set of repeated measurements on a set of variables. For example, in a labor application the variables could include weekly earnings, educational
attainment, age, and other de
ECONOMETRICS
The application of statistical and mathematical theories to economics for the purpose of testing hypotheses and forecasting future trends. Econometrics takes economic models and tests them through statistical trials. The results are then comp
Reading the Manuscript
To fully understand econometric methods, it is necessary to have a mathematical understanding of its mechanics, and this includes the mathematical proofs of the main results. Consequently, this text is self-contained, with nearly al
Econometric Software
Economists use a variety of econometric, statistical, and programming software. STATA (www.stata.com) is a powerful statistical program with a broad set of pre-programmed econometric and statistical tools. It is quite popular among ec