ECON3370 Lecture 1

Course Introduction

Lecture 1: Introduction: What is Econometrics?

• Econometrics literally means “economic measurement”. Econometrics is a science and art of using
economic theory and statistical techniques to analyze economic data.

A. Research Questions:
Example:
Effect of wage on education (increase – increase)
Econometrics – helps us quantify this relation. Draw the line – average effect. Tool – how strong
this relation is.

Other examples:

B. Data: Sources and Types

 Types of data:
1. Cross-sectional data are data on different entities (workers, consumers, firms, countries) for a single
time period
Example:
2. Time series data are data for a single entity (person, firm, country) collected at multiple time periods.
Example:
3. Panel data are data for multiple entities observed at multiple time periods.
Example:

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C. How do we use data to make informed decisions?

How do you make decisions?

How do businesses make decisions?

D. Populations, Samples, and Statistical Inference

A population is the entire group of entities that we are interested in learning about.
A sample is a subset or part of the population and it is what is used to perform statistical inference.
Statistical inference is the process of drawing conclusions from data that are subject to random
variation.

Population: countries, individuals, firms, we do not have the whole population but only samples.
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Econometrics: use statistical tool to make inference about the population.
Representative sample: a selected segment of a group that closely parallels the population as a whole
in terms of the key variables and characteristics that are under examination. For example, if roughly
half of the total population of interest is female, a sample should made up of approximately 50 percent
women in order to be representative.

E. Econometrics and other sciences

Econometric methods are widely used in other areas, such as
• Sociology (peer pressure and criminal activity)
• Political sciences (voting – how people make their decisions about candidate and campaign $)
• medicine/health services research (health insurance coverage and health outcome; consumption
of coffee and miscarriage; smoking and birth outcomes)