Lecture 1

Question 1

What is econometrics

Answer 1

Using stats to:
- Test economic theories
- Estimate the magnitude of economic relationships
- Forecasting
- Policy evaluation

Question 2

What type of relationships is econometrics. concerned with

Answer 2

Causal

Question 3

What do econometric methods allow us to do with non experimental economic data

Answer 3

Draw ceteris paribus conclusions from the observed data

Question 4

What are the 7 steps of econometric modelling

Answer 4

1. Formulate the question
2. Develop an economic model
3. Specify the econometric model
4. Set out hypotheses that are to be tested
5. Estimate the econometric model
6. Conduct the hypothesis tests
7. Interpret results and draw conclusions

Question 5

What is the key behind developing an economic model

Answer 5

• Making y as a function of x
• y= 𝑓(𝑥_1,𝑥_2,𝑥_3,𝑥_4,…)

Question 6

How do we acknowledge that there are other factors other than x1,x2,x3

Answer 6

By adding an error or disturbance term, 𝜇

Question 7

Example model form

Answer 7

Y= earnings
X1= education, x2= experience, x3= training
x4= innate ability 𝑦=𝑓(𝑥_1,𝑥_2,𝑥_3,𝑥_4,…)

Question 8

What do we try to estimate using an econometric model

Answer 8

The parameter 𝛽

Question 9

Example econometric model for Does training in machine maintenance increase machinists’ productivity?

Answer 9

Econometric model: 𝑦=𝛽0+𝛽1 𝑥1+𝛽2 𝑥2+𝛽3 𝑥3+𝜇
where 𝑦 = widgets per hour, 𝑥1 = hours of training, 𝑥2 = years of education, 𝑥3 = years of experience, 𝜇 = error or disturbance term

Question 10

To answer whether a variable X affects Y, what is the hypothesis to be tested

Answer 10

Is 𝛽≠0?

Question 11

To answer whether a variable x increases Y, what is the hypothesis to be tested

Answer 11

Is 𝛽>0?

Question 12

What are the 4 types of non-experimental data

Answer 12

• Cross sectional data
• Time series Data
• Pooled cross sectional data
• Panel data

Question 13

What does each row in a Cross sectional dataset refer to

Answer 13

An observation

Question 14

What does each row in a time series data set refer to

Answer 14

A time period such as years

Question 15

Why is chronology important for time series data

Answer 15

time periods are not independent

Question 16

What is pooled cross sectional data and are variables and samples the same in each cross section

Answer 16

Two or more similar cross sectional datasets, e ach relating to a different time period
- Variables are the same in each cross section
- Samples are not the same

Question 17

How is panel data different to pooled cross sectional data

Answer 17

• Sample of observations is the same in every time period

Question 18

What does econometric techniques do in summary

Answer 18

allow us to find out whether and by how much a change in 𝑥 causes 𝑦 to change even when, potentially, everything else is changing at the same time