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Nektarios Aslanidis (Universitat Rovira I Virgili and UNSW)
Nektarios Aslanidis (Universitat Rovira I Virgili and UNSW)
Nektarios Aslanidis (Universitat Rovira I Virgili and UNSW)
Semester 2, 2014
Introduction
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What is Econometrics?
Literally, econometrics means "economic measurement". It can be
dened as the quantitative analysis of actual economic phenomena
based on the concurrent development of theory and observation.
Economic theory makes statements or hypotheses that are mostly
qualitative in nature. E.g. ,the Law of Demand postulates a negative
relationship between the price and quantity demanded of a
commodity.
It is the job of the econometrician to provide numerical estimates of
such change.
Economic statisticians are responsible in collecting, processing, and
presenting economic data in the form of charts and tables. There are
little formal theoretical underpinnings.
While econometricians use the collected data to test economic
theories and to do predictions and forecasting.
Aslanidis (URV, UNSW)
Introduction
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Introduction
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Introduction
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Introduction
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Methodology of Econometrics
Introduction
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Methodology of Econometrics
0 < 2 < 1
where
Y = Consumption expenditure (dependent/explained variable)
X = Income (independent/explanatory variable, regressor)
1 , 2 = parameters
Introduction
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Methodology of Econometrics
Introduction
Semester 2, 2014
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Methodology of Econometrics
Estimation of the econometric model
Now, with the data and the specication of the econometric model,
we can obtain numerical estimates of the parameters using regression
analysis. In this example, we can do so by tting a regression line.
The estimated consumption functions is:
Y
b
Y
=
=
b +u
184 + 0.8X + u
b=Y
b
184 + 0.8X
Introduction
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Methodology of Econometrics
Introduction
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Methodology of Econometrics
Forecasting or Prediction.
We have specied and estimated an econometric model as shown
above. We may use it to predict the future values of the dependent
(or forecast) value of Y based on the known or expected future values
of the explanatory (or predictor) variable X .
Suppose we want to predict the mean consumption expenditure. The
GDP value for 1997 was $7269.8 billion. Plug in this GDP gure on
the right hand side of the estimated equation.
b1997 =
Y
Introduction
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