Welcome to EE325
Introductory Econometrics
Introduction
Why study Econometrics?
What is Econometrics?
Methodology of Econometrics
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Econometrics
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Course Goals
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To provide students an understanding of why econometrics is
necessary and a working ability with basic econometric tools
such that:
Students can apply basic econometric tools to estimation,
inference, and forecasting in the context of real world
economic problems
Students understand how to process information from a
sample of economic data
Students can read critically the results and conclusions
Students have a foundation for further study of advance
econometrics.
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Econometrics
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Why study Econometrics
A gap exists between what you have learned
as an economics student and what economists
actually do
 Most economists engage in economic analysis
(empirical: use economic data to estimate
economic relationships, test economic
hypotheses, and predict economic outcome)
 Studying Econometrics fills this gap
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Econometrics
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What is Econometrics?
“ Econometric is based upon the development
of statistical methods for estimating economic
relationship, testing economic theories, and
evaluating and implementing government and
business policy” (wooldridge p. 1)
 Econometrics is concerned with using data to
test a theory or to estimate a relationship—
empirical economic analysis.
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Econometrics
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What is Econometrics?
The study of Econometrics:
 Estimation of economic relationship
 Testing of hypotheses about
economic theory
 Forecasting
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Econometrics
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What is Econometrics?
Econometrics has evolved as a separate discipline
from statistics because
- Rare in economics (and many other areas without
labs!) to have experimental data. Econometrics
focuses on the problems inherent collecting and
analyzing nonexperimental, or observational, data
- Economists have developed new techniques to deal
with the complexities of economic data and to test
the predictions of economic theories
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Econometrics
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Methodology of Econometrics
Steps in Empirical Economic Analysis
1.
Formulation of the question of interest, statement
of theory or hypothesis
2.
Formulating a model (based on economic theory,
past experience or intuition, other studies):
-specification of the mathematical model of theory
-specification of the statistical, or econometric
model
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Econometrics
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Methodology of Econometrics
3.
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Obtaining the data
Estimation of the parameters of the
econometric model
Hypothesis testing
Forecasting or prediction
Policy decision
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Econometrics
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Types of Data – Cross Sectional
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Cross-sectional data: Data collected over sample
units in a particular time period
Consists of a sample of individuals, households,
firms, cities, states, countries, or a variety of other
units, taken at a given point in time.
for example: income by province in Thailand during
2006. (How many observation do we have?)
Often obtained by random sampling from the
underlying population
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Econometrics
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Types of Data – Time Series
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Time series data: data collected over discrete
intervals of time (observations on variable(s) over
time)
Time series data has a separate observation for
each time period – e.g. annual gross domestic
product of Thailand from 1980-2005
Since not a random sample, different problems to
consider
Trends and seasonality will be important
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Econometrics
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Types of Data – Pooled
cross sections & Panel
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Can pool random cross sections and treat
similar to a normal cross section – known
as pooled cross section data. Will just
need to account for time differences.
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Can follow the same random individual
observations over time – known as panel
data or longitudinal data. (consists of
time series for each cross-sectional
member in the data set)
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Econometrics
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