Business Analysis and

Econometric Application
Lecture 1
Poonam Singh
Module V
Programme Elective 2022
National Institute of Industrial Engineering
 • “All Roads Lead to Data”

DATA • “In God we trust; all others must bring data.”:

William Edwards Deming

• ‘Data is the new oil’ Clive Humby

LIKE OIL, DATA IS
ONLY USEFUL
AFTER REFINERY
What is
Econometrics?
Econometrics means “Economic
measurement”
Steps in Econometric Analysis
1a. Economic or financial theory (previous studies)

1b. Formulation of an estimable theoretical model

2. Collection of data

3. Model estimation

4. Is the model statistically adequate?

No Yes

Reformulate model 5. Interpret model

6. Use for analysis
Statistical • In regression analysis we are concerned with
what is known as the statistical, not functional or
deterministic, dependence among variables, such

versus as those of classical physics.

• In statistical relationships among variables we
essentially deal with random or stochastic

Deterministic variables, that is, variables that have probability

distributions.

Relationship
• In functional or deterministic dependency, on the
other hand, we also deal with variables, but these
variables are not random or stochastic. The
depend
Correlation,
1) The more firemen are sent to a
fire, the more damage is done.

Regression and 2) Children who get tutored get worse

grades than children who do not get
tutored

Causality 3) In the early elementary school years,

astrological sign is correlated with IQ,
but this correlation weakens with age
and disappears by adulthood.
The number of Nobel
prizes won by a
country (adjusting for
population) correlates
well with per capita
chocolate
consumption. 
Difference between Correlation and Regression
Does Regression
imply Causality?
 Structure
• Cross Section
• Sample of individuals, households,
firms, cities, states, countries etc., at a
given point in time
• Examples:
• poll of usage of Internet stockbroking
services,
of
• A cross-section of stock returns on the
NSE
• A sample of bond credit ratings for UK
Economic
Data
banks
• A cross sectional data set on working
individuals for a particular year
A cross sectional data
on wages and other
individual
characteristics
Obs Wage Education Experience Female Married
No.

1 3.10 11 2 1 0
2 3.24 12 22 1 1
3 3.00 11 2 0 0
4 6.00 8 44 0 1
5 5.30 12 7 0 1
A Data Economic Growth Rates and Country
Characteristics

Obs country Growth rate Govt. exp % adult pop

No. of gdp as % of with
GDP secondary
education

1 Argentina 0.89 9 32
2 Austria 3.32 16 50
3 Belgium 2.56 13 69
4 Bolivia 1.24 18 12
 • A time series data consists of
observations on a variable or several
variables overtime
• Examples:
• Stock prices, money supply,
consumer price index, gdp, annual
homicide rates, automobile sales
• Because past data affect future figures,

Time Series
time series data assumes importance in
econometric analysis
• Data frequency: weekly, monthly,
annual, daily, intra-day

Data
Time Series Data

Obs No. year avgmin avgcov unem gnp

1 1950 0.20 20.1 15.4 878.7
2 1951 0.21 20.7 16.0 925
3 1952 0.23 22.6 14.8 1015.9
. .
. .
. .
. .
37 1986 3.35 58.1 18.9 4281.6
38 1987 3.35 58.2 16.8 4496.7
Panel • A Panel or longitudinal data consists of a
time series for each cross section

Data
A Two Year Panel Set on City Crime Statistics

Obsno City year murders population unem Police

1 1 1986 5 350000 8.7 440
2 1 1990 8 359200 7.2 471
3 2 1986 2 64300 5.4 75
4 2 1990 1 65100 5.5 75