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The Nature of Econometrics and Economic Data

Econometrics is the use of statistical methods to answer economic questions by using analysis of
economic data.

Describes economic landscape, utilizing descriptive statistics/imagery to motivate/aid economic


It tests/attempts to distinguish between economic theories and allows for evaluation of both
government and business policy

Data are a set of measurements taken on an individual unit, stored and presented in a dataset

Dataset are comprised of variables measured on individual cases

Variable is any characteristic recorded on each case

Types of Data and terminology:

A dataset records the value of one or more variables on several units of observation

Three classificastion criteria :

Type of variable - numerical or categorical data

Type of unit of observation - cross-section, time-series, panel data

Number of Variables : Univariate data, bivariate data, multivariate data

Numerical Data (Quantitative) :

Naturally recorded and interpreted as numbers
Can be continuous or discrete
e.g. annual income, hours worked, annual GDP

Categorical Data
Data that are recorded as belonging to one or more groups
Can be recorded as numbers but these numbers have no inherent meaning
E.g. Gender, religion, Birthplace

Cross Section data :

Data on different entities collected at a common point in time
Sample of individuals, households, firms, countries, other units taken at a point in time
E.g. Single year of census data, unemployment rates by state for one year

Time Series Data

Data on the same quantity at different points in time
E.g. GDP of country overtime, monthly unemployment rate

Panel Data
Data on different entities(e.g. individuals) with each entity observed at multiple points in time
Mixture of cross section and time series data
E.g. Earnings of USYD graduates over time, life expectancy by country over time

Univariate data
Single data series containing ovservations of only one variable
E.g. Earnings of uni graduates in 2012

Bivariate Data
Data composed of two potentially related data series
E.g. Education and earnings of individuals, inflation and unemployment rates over time

Multivariate Data
Data composed of three or more potentially related data series
Interested in how x relates to k
E.g. Education,experience,gender and income for a cross section of individuals

What to do with economic data

A: 3 Basic Steps of Data Analysis

Data Summary
Typically use a combination of visual represeentations of the data and statistics
Variety of tables, graphs and charts (scatterpplots, histograms,maps)
Use statistics to measure characteristics of
Single variable (mean, median, variance)
Relationships between multiple variables (covariance, correlation, liner regression)
Our choice of sumarry statistics and graphs is dependent on both the type of data available and
what the researcher is interested in

Statistical Inference
Basic idea of statistical inference is to draw conclusions about a relationship we cannot observe
Typically we cannot reach definitive conclusions because we only observe a sample rather than
the population
Statistical Inference
Using what we know about the sample and about the probabilities of reaching certain
conclusions to make a statement about the probable characteristics ofvariables and likely
relationships between them at the population level

Interpretation :
Statistics and Data Analysis
Statistics essentiall is using data to figure out as much as we can about a parameter we cannot
Our statistical model describes a population we cannot observe, as describing whole population
is tedious
e.g. Education and salary of every person on earth

The model has one or a few parameters:

Describing the thing we're interested in e.g. correlation between education and salary

We then assume that our dataset is a sample taken from the population
From this dataset we calculate an estimater for the true but unknown parameter
e.g. Sample correlation between education and salary

We then conduct inference, where the estimator is not equal to the parameter but allows us to
say something about how close or far off it is likely to be, where CI and hypothesis testing works.

Univariate Data Summary

Univariate data are a single series of data that are observations on one variable
E.g. Numerical data : Annuals earnings for each person in a sample of women
Categorical Data : Country of birth for each person in a sample of women

Summary Statistics for Univariate Data :

Graphs for giving glimpse of data
Con : Very vague when comparing and interpretating e.g. Where is mean, size of distribution

Summary statistics give us a standardized way of summarizing univariate data allowing us to

compare among different samples

Type of Summary Statistics :

Key measures of the characteristics of the distribution of a data series
Central tendency - where is the center of the distribution of the data
e.g. What is the typical Australian employee salary
Dispersion: how spread out is the data
e.g. How much inequality is there in our income distribution
Skewness- How symmetric is the distribution
e.g. How many millionaires vs. minimum wages
Kurtosis(Peakedness) - How fat are the tails, tall is the pea?
e.g. How are rare MW and millionaiers compared to typical earners

Measures of Central Tendency :

Measure of central tendency describes the center of the distribution in the data

Answers the question : What is the typical value in this sample?

Several Measures : Sample mean, median, mopde

Sample Mode : Most frequently occuring value in sample

Quartiles, deciles, percentiles : Pth percentile is the value for which p percent of the observed

values are equal to or less than the value

Measures of