Econometrics For Dummies

Roberto Pedace

• Publisher: For Dummies
• Year: 2013
• ISBN:
  9781118533871
• Edition: 1
• Topic: Economics
• Subtopic: Econometrics
• Index: Economics

Score your highest in econometrics? Easy.

Econometrics can prove challenging for many students unfamiliar with the terms and concepts discussed in a typical econometrics course. Econometrics For Dummies eliminates that confusion with easy-to-understand explanations of important topics in the study of economics.

Econometrics For Dummies breaks down this complex subject and provides you with an easy-to-follow course supplement to further refine your understanding of how econometrics works and how it can be applied in real-world situations.

• An excellent resource for anyone participating in a college or graduate level econometrics course
• Provides you with an easy-to-follow introduction to the techniques and applications of econometrics
• Helps you score high on exam day

If you're seeking a degree in economics and looking for a plain-English guide to this often-intimidating course, Econometrics For Dummies has you covered.

Part I

Getting Started with Econometrics

For Dummies can help you get started with lots of subjects. Visit www.dummies.com to learn more and do more with For Dummies.

In this part . . .

Get familiar with the approach economists use when investigating empirical issues — not controlled experiments that never seem to contradict standard statistical assumptions.

Find out the basic commands you need to work with data files in STATA 12.1, a popular form of econometric software, and discover the syntax structure for executing estimation commands.

Review the probability concepts that are most relevant for your study of econometrics: topics that focus on the properties of probability distributions and their use in calculating descriptive statistics of random variables.

Reinforce your knowledge of statistical inference so you can be better equipped to use surveys and other forms of sample data to test your hypotheses and draw conclusions.

Chapter 1

Econometrics: The Economist’s Approach to Statistical Analysis

In This Chapter

Discovering the goals of econometric analysis

Understanding the approach and methodology of econometrics

Getting familiar with econometrics software

Welcome to the study of econometrics! The Econometric Society, founded in 1930, defines econometrics as a field based on a ­“theoretical-quantitative and empirical-quantitative approach to economic problems.” This mouthful means that, at times, econometricians are mathematicians and use complex algorithms and analytical tools to derive various estimation and testing procedures. At other times, econometricians are applied economists using the tools developed by theoretical econometricians to examine economic phenomena.

In this chapter, you see that a distinguishing feature of econometrics is its development of techniques designed to deal with data that aren’t derived from controlled experiments and, therefore, situations that violate many of the standard statistical assumptions. You also begin to understand that, under these circumstances, obtaining good quantitative results depends on using reliable and adequate data as well as sound economic theory.

And because computers and econometric software are now commonly used in introductory econometrics courses, I also devote a section of this chapter to introducing basic commands in STATA (version 12.1), a popular econometrics software program. This software allows you to immediately apply theoretical concepts and enhance your understanding of the material.

Evaluating Economic Relationships

Economics provides the theoretical tools you use to evaluate economic relationships and make qualitative predictions of economic phenomena using the ceteris paribus assumption. You may recall from your previous courses that the ceteris paribus assumption means that you’re keeping everything else constant. Two examples among numerous possibilities are:

In microeconomic theory, you’d expect economic profits in a competitive market to induce more firms to enter that market, ceteris paribus.

In macroeconomic theory, you’d expect higher interest rates to reduce investment spending, ceteris paribus.

Econometrics ties into economic theory by providing the tools necessary to quantify the qualitative statements you (or others) make using theory. Unknown or assumed relationships from abstract theory can be quantified using real-world data and the techniques developed by econometricians.

The following section explains how econometrics helps characterize the future and describe economic phenomena quantitatively, and then I clarify why an econometrician must always make sensible assumptions.

Using economic theory to describe outcomes and make predictions

One of the characteristics that differentiate applied research in econometrics from other applications of statistical analysis is a theoretical structure supporting the empirical work.

Econometrics is typically used to explain how factors affect some outcome of interest or to predict future even...