Introduction

# Econometrics ## Intro ### Introduction - What conveys the study of econometrics? - The unification of three main areas: 1. Statistics 2. Economic theory 3. Mathematics \`\`Econometrics conveys application of mathematical statistics and the tools of statistical inference to the empirical measurement of relationships postulated by an underlying theory." ### The Big Data Revolution: Into a new paradigm? Traditional econometrics: Measuring and testing theoretical relationships Can Big Data replace theory? ### The practice of econometrics - Theoretical econometrics vs. applied econometrics - This course is designed for the applied economist. - Applied econometric methods will be used for estimation of important quantities, analysis of economic outcomes such as policy changes, markets or individual behavior, testing theories, and for forecasting. ### Econometric Modeling - Consider the Keynesian consumption function: $C=f(X)$, where $X$ is disposable income. - Theoretical postulates: $dC/dX$ is positive and $00$ 2. $APC=C/X$ falls with income 3. $d(C/X)/dX=(MPC-APC)/X<0$ $\rightarrow$ $MPC0$ and $0<\beta<1$. - Some points to note: 1. Notice the behavioral aspect of the model. 2. The model states an unambiguous and deterministic relationship between the dependent and independent variables. 3. Models are only simplifications of reality; we need an stochastic element. 4. A probabilistic model is less precise but more robust!