What is Econometrics

V c Hong V
University of Economics HCMC

June 2015

V c Hong V (UEH)

Applied Econometrics

June 2015

1/1

What is Econometrics?
1

Econometrics is based upon the development of statistical

methods for estimating economic relationships, testing economic
theories, and evaluating and implementing government and
business policy.
forecasting of such important macroeconomics variables as
interest rates, inflation rates, and gross domestic product.
Ex: Effects of political campaign expenditure on voting outcome
(Expenditure voting outcome)
impact of school spending on student performance (school
spending student performance)

V c Hong V (UEH)

Applied Econometrics

June 2015

2/1

Example

crime = 0 + 1 wagem + 2 othinc + 3 freqarr + 4 freqconv +

5 avgsen + 6 age + u, (1)
where

crime = some measure of the frequency of criminal activity,

wagem = the wage that can be earned in legal employment,
othinc = the income from other sources (assets, inheritance, and so o
freqarr = the frequency of arrests for prior infractions (to approximate
freqconv = the frequency of conviction, and
avgsen = the average sentence length after conviction
V c Hong V (UEH)

Applied Econometrics

June 2015

3/1

Example 2.1

V c Hong V (UEH)

Applied Econometrics

June 2015

4/1

Steps in Econometrics
1

Specify an economic model, then turn it into what we call an

econometric model.
Identify function form: f () before undertaking an econometric
analysis.
Formulating hypotheses of interest
ex: the wage that can be earned in the legal employment has no
effect on criminal behaviour.
H0 : 1 = 0
H1 : 1 6= 0

4
5

Data collection
Empirical analysis.

V c Hong V (UEH)

Applied Econometrics

June 2015

5/1

Structure of Economic Data

Cross-sectional Data (CS): consists of a sample of individuals,

households, firms, cities, countries or a variety of other units,
taken at a given point in time.

V c Hong V (UEH)

Applied Econometrics

June 2015

6/1

Structure of Economic Data

Cross-sectional Data (CS): consists of a sample of individuals,

households, firms, cities, countries or a variety of other units,
taken at a given point in time.
Time Series Data (TS): consists of observations on a variable or
several variables over time. Ex: stock-price, money supply.

V c Hong V (UEH)

Applied Econometrics

June 2015

6/1

Structure of Economic Data

Cross-sectional Data (CS): consists of a sample of individuals,

households, firms, cities, countries or a variety of other units,
taken at a given point in time.
Time Series Data (TS): consists of observations on a variable or
several variables over time. Ex: stock-price, money supply.
Pooled Cross Sections: combine between CS and TS. However,
it is organized as a stacked CS data over years.

V c Hong V (UEH)

Applied Econometrics

June 2015

6/1

Structure of Economic Data

Cross-sectional Data (CS): consists of a sample of individuals,

households, firms, cities, countries or a variety of other units,
taken at a given point in time.
Time Series Data (TS): consists of observations on a variable or
several variables over time. Ex: stock-price, money supply.
Pooled Cross Sections: combine between CS and TS. However,
it is organized as a stacked CS data over years.
Panel Data: consists of a time series for each cross-sectional
member in the dataset.

V c Hong V (UEH)

Applied Econometrics

June 2015

6/1

A Cross-Sectional Data Set

V c Hong V (UEH)

Applied Econometrics

June 2015

7/1

Time Series Data Set

V c Hong V (UEH)

Applied Econometrics

June 2015

8/1

Pooled Cross Sections

V c Hong V (UEH)

Applied Econometrics

June 2015

9/1

Panel Data Set

V c Hong V (UEH)

Applied Econometrics

June 2015

10 / 1