2016/4/5

Textbook
Wooldridge, J.M. Introductory Econometrics: A Modern
Approach, 5th edition, Cengage, 2013.
Available at Univ. Co-op Bookstore

6 600 JPY + tax 8%

Membership discount 10% additionally applies

Accessible at Lee Kun-Hee Commemorative Library

(FPSE Student Library) (Bld 3, B1F)

Reading assignments

Econometrics I, Lecture 1

Yasushi Kondo

Reading the textbook is indispensable for successful learning.

Students should read the relevant part of the textbook after
each class to review what you have learned.

Prerequisites (Appendices A to C)
A. Basic Mathematical Tools
B. Fundamentals of Probability
C. Fundamentals of Mathematical Statistics

Except for C3 and C4

Grading & Homework assignments

40% Homework

60% Final exam

By when do I have to review the background?

A (Summation) & B (Conditional expectation)

by Lecture 2 (Chapter 2)
C (estimation and testing) by Lecture 4 (Chapter 3)

Econometric software

EViews
Stata

Schedule
Final exam on Monday 6 June
No class on Friday 8 April and Thursday 12 May

Internet resource

EViews Tutorial: www.eviews.com/Learning/

The Stata YouTube channel: www.youtube.com/statacorp/

Computer exercises

Given at every lecture

Answers provided through Course N@vi
Need not to hand in. Not graded

Software and Computer exercises

About 50% from homework (to hand in & not to hand in)

Additional problem sets

5 assignments are given

Hand in your answer through Course N@vi

Homework assignments and TA sessions

Written answers and step-by-step instructions would be
provided through Course N@vi
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Sun
3 Apr
10 Apr
17 Apr
24 Apr
1 May
8 May
15 May
22 May
29 May
5 Jun

Mon
4 Apr
11 Apr
18 Apr
25 Apr
2 May
9 May
16 May
23 May
30 May
6 Jun

Tue
5 Apr
12 Apr
19 Apr
26 Apr
3 May
10 May
17 May
24 May
31 May
7 Jun

Wed
6 Apr
13 Apr
20 Apr
27 Apr
4 May
11 May
18 May
25 May
1 Jun
8 Jun

Thu
7 Apr
14 Apr
21 Apr
28 Apr
5 May
12 May
19 May
26 May
2 Jun
9 Jun

Fri
8 Apr
15 Apr
22 Apr
29 Apr
6 May
13 May
20 May
27 May
3 Jun
10 Jun

Sat
9 Apr
16 Apr
23 Apr
30 Apr
7 May
14 May
21 May
28 May
4 Jun
11 Jun

2016/4/5

Questions and Notice

Questions are most welcome

In the classroom

Course N@vi and Auditing w/o credit

Do NOT share materials provided through Course N@vi
with others.

Lectures on Mondays and Thursdays

TA session on Friday, 4th period (14:4516:15) at 3-903

Face-to-face at my office, Room 3-1308

E-mail: ykondo@waseda.jp
BBS in Course N@vi

May I audit this course w/o credit?

Important notice would be given both in Course N@vi and in

the classroom.

Homework assignments to hand in

Cancellation of class
Final exam

1.1 What is Econometrics?

1.2 Steps in Empirical Economic Analysis
1.3 The Structure of Economic Data
1.4 Causality and the Notion of Ceteris Paribus in
Econometric Analysis

No, as a general rule.

Yes, if you are not allowed to take this course officially.
Check if you may take this course as an optional course.
Visit my website

Chapter 1: The Nature of Econometrics and

Economic Data

I am allowed by the publisher to make those materials available

only for registered students.

1.1 What is Econometrics?

Purpose

Forecasting economic time series

Testing economic theories
Estimating relationships between variables for business
decisions or policy analysis

Data

Non-experimental data

Experimental data, difficult to obtain

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1.2 Steps in Empirical Economic Analysis

Step 1. The careful formulation of the question of interest

Formal economic model

Intuition, common sense

Non-experimental = Observational = Retrospective

Beckers model of criminal behavior, eq. (1.1)

Job training and worker productivity, eq. (1.2)

Economic model of crime (Becker, 1968)

Derived equation for criminal activity based on utility

maximizing-behavior
Functional form of not specified
Equations w/ and w/o formal economic theory are OK

Step 2. Building econometric model

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Variables, including proxies, are observable

Functions are specified, e.g., linear, log, ...
Error term, disturbance term
Parameters
Eqs. (1.3), (1.4)

1, 2, 3, 4, 5, 6, 7

hours spent in
criminal activities
wage for an hour spent
in criminal activity

(1.1)
age
expected sentence
if convicted

income other than from

crime or employment

hourly wage in legal employment

probability of
being convicted if caught
probability of getting caught

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2016/4/5

Building an econometric model

1.2 Steps in Empirical Economic Analysis

The functional form must be specified

Observable (proxy) variables must be used
The error term represents unobserved factors

Step 3. Stating hypotheses of interest

The more a person can earn legally, the less crime he/she commits.
in terms of parameters

Coefficient on
wage for legal employment

frequency of prior arrests

(proxy for )

other income

= 0 vs

<0

To estimate parameters (e.g., OLS, GLS, IV, GMM, ML)

To formally test hypotheses (e.g., t, F, Wald, LR, LM)

(1.3)

Step 4. Collecting data and applying econometric methods

measure of criminal activity

frequency of conviction

average sentence length

after conviction

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1.3 The Structure of Economic Data

Data are necessary for econometrics

Different types of data sets

Appropriate method varies, depending on data structures

Cross-sectional data
Time series data
Pooled cross sections
Panel or longitudinal data

Necessary to choose an appropriate method.

1.4 Causality and the Notion of Ceteris

Paribus in Econometric Analysis

Causal effect of on :
When changes under the condition that other variables
are held constant, how does change?

Ceteris paribus = other variables are held constant

Most economic questions are ceteris paribus questions

Steps to understand causality

Details are not covered. Read through this section.

15

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Example 1.3:
Effects of fertilizer on crop yield

"By how much will the production of soybeans increase if

one increases the amount of fertilizer applied to the
ground?"

Implicit ceteris paribus assumption: All other factors influencing

crop yield (e.g., quality of land, rainfall, presence of parasites)
are held constant

Experiment:

Choose several one-acre plots of land

Randomly assign different amounts of fertilizer to these plots
Compare yields

Experiment works because amount of fertilizer applied is

unrelated to other factors influencing crop yields
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Define which causal effect is under study

Describe how an experiment would have to be designed, even
though it is infeasible

Quoted from Cengage Learning (2013) Instructors material for Wooldridge (2013)

Example 1.4:
Measuring the return to education

"If a person is chosen from the population and given

another year of education, by how much will his or her
wage increase?"

Experiment:

Implicit ceteris paribus assumption: All other factors influencing

wages (e.g., experience, family background, intelligence) are
held constant
Infeasible!
Choose a group of people
Randomly assign different amounts of education to them
Compare wage outcomes

Problem without random assignment: Amount of

education is related to other factors influencing wages
(e.g. intelligence)
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Quoted from Cengage Learning (2013) Instructors material for Wooldridge (2013)