CHAPTER 1
Overview of Econometrics
Lectured by: CHHAY Khunlong
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gmai .com
CK@Econometrics
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1 Introduction
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1 Definition:
.
y Economist Goldberger: ““Econometrics may be
d fi
d
e ne as
the social science in which the tools of economic
theory, mathematics, and statistical inference are
applied to the analysis of economic phenomena”.
y Economist Samuelson- ““… econometrics may be
defined as the quantitative analysis of actual
economic phenomena based on the concurrent
development of theory and observation, related
by appropriate methods of science”.
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Econometric Output
E ti
ti
/M
t
y s ma on easuremen
y Inference/Hypothesis testing
yForecasting/Prediction
yEvaluation
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Econometric Input
y Ingredients of an econometric
exercise:
◦ Economic Theory
◦Mathematics
◦ Statistical Theory
D
◦ ata
◦ Computing Power
◦ Interpretation/Economic
Knowledge/Common Sense.
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2 Why Study Econometrics?
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y Use econometrics to test and refine theory
y Theory may be ambiguous about impact of a
policy change
◦ econometrics can evaluate the program
y Econometric analysis is useful to decision
makers.
y Rare in economics to have experimental
data
y Need to use nonexperimental, or
observational, data to make inferences
y Important to be able to apply economic
theory to real world data
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3 Econometric Methodology
.
(1) Statement of theory or hypothesis
(2) Specification of mathematical model of theory
(3) Specification of the econometric model
(4) Obtaining data
(5) Estimation of model parameters
(6) Hypothesis testing
(7) Forecasting or prediction & Simulation for
control or policy purposes
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Keynesian Consumption Function
y Theory: people increase consumption as
income increases, but not by as much as
the increase in their income.
◦ Marginal Propensity to Consume (MPC) is the
change in consumption divided by change in
income.
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Keynesian Consumption Function
C = β + β Y
y
0
1
◦ C = Consumption
◦ β0 = Interc