Post on 09-Dec-2016
Applied Econometrics
Applied EconometricsSecond edition
Dimitrios Asteriou and Stephen G. Hall
Applied Econometrics
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INTRODUCTION
1. What is Econometrics?2. The Stages of Econometric Work
Applied Econometrics
What is Econometrics?Econometrics means measurement (metrics in
greek) in economics.The importance of applied work in economics is
increasing constantly.Theory suggests that X affects Y but is this true
or not?This is the work of the applied econometrician.
Applied Econometrics
What is Econometrics?• Examples of problems that may be
tackled by an Econometrician(a)Modelling long-term relationships among
prices and interest rates.(b)Examining the effect of inflation in
unemployment rates(c) Examining the effect of disposable
income on consumption
Applied Econometrics
What is Econometrics?• Examples of problems that may be
tackled by an Econometrician (continued)
(a) Determining the factors that affect GDP per capita growth
(b) Testing the validity of the CAPM and APT theories
(c) Forecasting the correlation among the returns and the stock indices of two countries.
Applied EconometricsThe Stages of Applied Econometric Analysis
Economic Theory
Econometric Model Data
Model Estimation
Specification Testing and Diagnostics
Is the Model Adequate?
No Yes
Test any hypothesis
Use for Predictions and Policy Making
Applied Econometrics
The Structure of Economic Data
• There are three different types of economic data
• TIME SERIES• CROSS SECTIONAL• PANEL DATA
Applied Econometrics
The Structure of Economic Data• Time Series Data• Examples: GDP, Unemployment, Inflation,
Stock Prices, etc• Vectors or Columns (like in a spreadsheet)• Frequencies: Yearly, Bi-annually, Quarterly,
Monthly, Weekly, Daily, Hourly.• Lots of different values for different time
periods for one country, state, city, market.
Applied Econometrics
The Structure of Economic Data• Cross-Sectional Data• Examples: GDP, Unemployment, Inflation,
Stock Prices, etc. • Vectors or Rows (like in a spreadsheet)• Frequencies: Yearly, Bi-annually, Quarterly,
Monthly, Weekly, Daily, Hourly.• Lots of different values for different countries,
states, cities, markets, but for one time period only.
Applied Econometrics
The Structure of Economic Data• Panel Data• A combination of time series and cross-sectional data.• Examples: GDP, Unemployment, Inflation, Stock Prices,
etc. • Matrices (columns and rows to make an n times m matrix)• Frequencies: Yearly, Bi-annually, Quarterly, Monthly,
Weekly, Daily, Hourly.• Lots of different values for different countries, states, cities,
markets, and for different time periods.
Applied EconometricsThe Structure of Economic
Data - Notation• Time series: Yt, t=1990, 1991, …, 2012• Cross-Sectional: Yi, i=1, 2, 3, …, 40• Panel Data: Yit, i and t defined as above.
• It is common to denote each observation by the letter t and the total number of observations by T for time series data, and to denote each observation by the letter i and the total number of observations by N for cross-sectional data.
Applied Econometrics
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The Structure of Economic Data – Quantitative vs Qualitative
• The data may be quantitative and qualitative.
• Quantitative (e.g. GDP per capita, exchange rates, stock prices, unemployment rates)
• Qualitative (e.g. Day of the week, gender, level of education)