introduction to econometrics - zhaopeng(frank)qu … · stock & watson (2012) in general,...
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Introduction to EconometricsLecture 0: Introduction
Zhaopeng Qu
Business School,Nanjing University
Sep. 4th, 2017
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Outlines
Outlines
1 Introduction: Interesting and Important Questions
2 What is Econometrics?
3 Why and who should take the course?
4 The Structure of Economic Data
5 Logistics to the Course
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Introduction: Interesting and Important Questions
Question #1: Student’s Performance and Class Size
Economics suggests important relationships, often with policyimplications, but virtually never suggests quantitative magnitudesof causal effects.
A Classical Issue in Economics of Education: Student’sPerformance and Class SizeTurn it into an empirical or policy question: What is thequantitative effect of reducing class size on studentachievement?Like by 5 student per class? or 10?
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 3 / 41
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Introduction: Interesting and Important Questions
Other Similar Questions
Gender Discrimination in Labor MarketCigarette Taxes and SmokingJob Trainning program on earningsQuantitative easing(QE) on economic growthThe effect of credit regulation on housing priceThe effect of coupon on products sales
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 4 / 41
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Introduction: Interesting and Important Questions
Quantitative Answers to Quantitative Questions
Many decisions in economics, business and government hinge onunderstanding the relationship among variables in the worldaround us.
Economic theory provides clues about the direction of theanswer.but decisions require quantitative answers to quantitativequestions.
Therefore we have develop a framework and find a practicalmethod that provide both a numerical answer to the question anda measure of how precise the answer is.
Econometrics
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What is Econometrics?
Introduction:
It could includeTesting economic theories.Using historical data to give policy recommendations.Estimating causal effects.Using data to forecast future values of economic variables.
Haavelmo (1944) states: “The method of econometric researchaims, essentially, at a conjunction of economic theory and actualmeasurements, using the theory and technique of statisticalinference as a bridge pier.”
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 6 / 41
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What is Econometrics?
Introduction:
The term econometrics is attributed to Frisch; 1969 Nobel Prizeco-winner（the first year for Economics)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 7 / 41
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What is Econometrics?
Introduction: Econometrics
“Econometrics is by no means the same as economic statistics.Nor is it identical with what we call general economic theory,although a considerable portion of this theory has a definitelyquantitative character. Nor should econometrics be taken assynonymous with the application of mathematics to economics.Experience has shown that each of these three view-points, thatof statistics, economic theory, and mathematics, is a necessary,but not by itself a sufficient, condition for a real understanding ofthe quantitative relations in modern economic life. It is theunification of all three that is powerful. And it is this unificationthat constitutes econometrics.”
(Frisch, Econometrica, 1933, volume 1, pages. 1-2)
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What is Econometrics?
Introduction:Econometrics
“Ask a half dozen econometricians what econometrics is—youcould get a half dozen different answers.
At a broad level, it is a science and art of using economictheory and statistical techniques to analyze economic data.”-Stock & Watson (2012)
In general, Searching for Economic Logics from Data.More and more prevalence in
other social science such as political science, sociology, lawand education studies etcand business practice, such as Data Science.
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What is Econometrics?
Introduction: Econometrics
Social science(firstly start by Economics) is experiencing twomethodological “revolutions” over the past few decades.On the one hand, there is the “credibility revolution”
A movement that emphasizes the goal of obtaining secure causalinferences(Angrist and Pischke, 2010)
On the other hand, there is the “Big Data revolution”A movement that emphasizes that how our increasing ability toproduce, collect, store and analyze vast amounts of data is going totransform our understanding of the human affairs.
Obviously, Econometrics are playing a key role in these two“revolution”.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 10 / 41
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Why and who should take the course?
Why Econometrics is so important?
Why should one study econometrics? How is studyingeconometrics helpful in understanding various economic problems?Can one excel in the field without learning econometrics?The answer to these questions is simple.
One hardly to learn modern economics without theknowledge of econometrics.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 11 / 41
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Why and who should take the course?
Why Econometrics is so important?
Econometrics is one of three core courses in almost everydepartment of economics.Econometrics is a important research field
Many Noble Prize winners
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Why and who should take the course?
For Whom?
those who want to pursue an academic career?Congratulations! You are in one of the most promising andinternationalizing areas in China economic research.
Master econometrics knowledge will improve your researchgreatly.Your research is judged on how convincing it is.Econometrics helps ensure and formalize credibility.Overwhelming majority of top journal articles arequantitative.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 13 / 41
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Why and who should take the course?
For Whom
those who want to enter professional market: MasteringEconometrics can get you a better job!
A curious phenomenon: Why did the Wall Street hire moremathematics/statistics /economics graduates than anytimein history?overwhelming financial data to analyzeCredit cards, POS terminals and ERP systems widely used insupermarkets, banks and factories also revolutionize thebusiness (or management) practices in marketing,accounting, management operation etc.A lot of internet firms even hire economists to lead theirspecial R&D department. Such as
GoogleMicrosoftebay
Besides in finance, Big data are also grow vigorously inConsulting and Business areas.
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Why and who should take the course?
For Whom
Introduction to Econometrics could not be a boring anddemanding variant of a mathematics course, but an interestingand have fun.You can just enjoy it by thinking in an empiricist’s way in youdaily life.
have novel ideas or new perspectives about our world.Econometrics is kind of a bible or philosophy of economists.
We will cover many very interesting topics .Two Interesting Samples
Eg. Crime and Abortion in Freakonomics written bySteven Levitt.Eg. What is the value to be the president’s son? inEconomic Gangster written by Raymond Fisman andEdward Miguel.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 15 / 41
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Why and who should take the course?
Hard and Soft Skills
Whatever you would like to beEnjoy doing something seriously and cultivate a specialquality for yourself!
You SHOULD learn or improve several important skills duringcollege.Hard Skills
LanguageComputer
Soft SkillsCritical ThinkingPresentationTeamwork
In this class, you will learn/practice all above skills.Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 16 / 41
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Why and who should take the course?
Conclusion
In a word, Introduction to Econometrics is a very very veryimportant and interesting course, you should work hard on it.
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The Structure of Economic Data
Types of Data: Structure
Data StructureCross-sectional dataTime series dataPooled cross-sectional dataPanel data
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The Structure of Economic Data
Cross-Sectional Data: (Main Focus)
Units: individuals, households, firms, cities, states, countries, etc.Data on multiple agents at a single point in time
{xi, yi...}Ni=1;N = Sample Size
Usually obtained by random sampling from the underlyingpopulation.It means
{xi, yi ⊥ xj, yj}, i ̸= j ∈ N
Cross-sectional data are widely used in economics and othersocial sciences:
labor economicspublic financeindustrial economicsurban economicsdemographyhealth economics
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 19 / 41
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The Structure of Economic Data
Cross-Sectional Data: (Main Focus)
x = STRatio; y = TestScore; N = 420Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 20 / 41
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The Structure of Economic Data
Time Series Data:(Not Cover)
Observations on a variable (or several variables) over time, thusdata on a single agent at multiple points in time
{xt, yt...}Tt=1;T = Sample Size
Examples:stock pricesmoney supplyconsumer price index(CPI)gross domestic product(GDP)automobile sales
Economic observations can rarely be assumed to be independentacross time. So we have to account for the dependent nature ofeconomic time series.Data frequency: minutes, hourly, daily, weekly, monthly, quarterly,annually.Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 21 / 41
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The Structure of Economic Data
Time Series Data:(Not Cover)
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The Structure of Economic Data
Panel(or Longitudinal) Data
Time series for each cross-sectional member in the data set, thusdata on multiple agents at multiple points in time.The same cross-sectional units (individuals, firms, countries, etc.)are followed over a given time period.
{xit, yit...}NTi=1,t=1,
Advantages of panel data:Controlling for (time-invariant) unobserved characteristicsConsideration of the effects of lag variables
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 23 / 41
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The Structure of Economic Data
Panel(or Longitudinal) Data
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The Structure of Economic Data
Pool(Repeat) Cross-Sectional Data(Pseudo-Panels)
Pooled cross sections can be generated by combining two or moreyears cross-sectional Data.Cross-sectional data in each year is independent with other years.
It means that data does not track the respondent multipletimes.But the data come from a same population in different time.
For it has both cross-sectional and time series features, so allowsconsideration of changes in key variables over time.Simple pooling may also be used when the number ofobservations of a single cross section is small.It is widely used in:
Before-after comparisons of a government policyCohort studiesCross-sectional analyses
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 25 / 41
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The Structure of Economic Data
Pool Cross-Sectional Data
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The Structure of Economic Data
Types of Data
Traditional Collecting methodCensusSurveyAdministrative data
Digital timesMass or Big data:
Online documentSocial MediaGeolocations or Geographic data
High Frequency DataStock,futures or other financial tractional data
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The Structure of Economic Data
Data in China
Survey DataChina Household Income Project(CHIP)-Pool Cross SectionalChina Family Panel Survey(CFPS)-PanelChina Health and Retirement LongitudinalStudy(CHARLS)-Panel
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The Structure of Economic Data
Econometrics: sub-fields or sub-course
Micro-EconometricsCross-SectionalPool Cross SectionalPanel
Macro-EconometricsTimes series
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The Structure of Economic Data
Econometrics: sub-fields or sub
Theoretical EconometricsIt is concerned with methods, both their properties anddeveloping new ones.It is closely related to mathematical statistics, and it statesassumptions of a particular method, its properties etc.We could call theoretical econometricians as the producer ofeconometrics.
Applied EconometricsMore orientated to applied work, such as choice of techniqueand interpretation of research finding.But it should be also based on a solid conceptual foundationand some practical experiences plus a little bit skills ofcomputer.We are the consumers of econometrics.
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Logistics to the Course
About Me and our TA
My name is QU, Zhaopeng (曲兆鹏)Position and Affiliation: Associate Professor, Institute of PopulationStudies, Business School.Research Fields: Labor Economics and Applied EconometricsOffice: room 2021, Anzhong BuildingOffice Hour: Make an appointment in advanceTel: 83621232Website: frankqu.weebly.comEmail: [email protected]
TA: Xiaoguang Ling(凌晓光）3rd year graduate studentgood at Stata and RWeChat ID: hunadongEmail: [email protected]
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Logistics to the Course
Prerequisite
I assume that You should be comfortable some basic concepts ofprobability theory and statistics, such as
expectationvarianceprobability density function, p.d.f.cumulative distribution function, c.d.fcovariance
There’ll be a brief review of basic statistics after we fix the bigpicture.
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Logistics to the Course
Reference Textbooks
Required Textbook: James H. Stock & Mark W. Watson, (2012).Introduction to Econometrics, 3rd Edition, Pearson Education.
影印版：格致出版社／上海人民出版社。中文版：世纪出版集团／上海人民出版社。
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Logistics to the Course
Reference Textbooks
Supplementary textbookJoshua D. Angrist & Jorn-Steffen Pischke, (2014). Mastering ’metrics:The Path from Cause to Effect. Princeton University Press.Jeffrey M. Wooldridge,(2012). Introductory Econometrics: A ModernApproach, 5th or 6th Edition, South-Western College.
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Logistics to the Course
Computing Tools
The main computing tools used in the course are Stata and R ,optionally.
Stata is a complete, integrated statistical package that provideseverything you need for data analysis, data management, and graphics.R is a free software and useful for statistical study and econometrics.
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Logistics to the Course
Reference Software Books
Stata Instruction任何一本中文书或英文书。
R Instruction任何一本中文或英文书。too many resources online such as Datacamp
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Logistics to the Course
Interesting BooksSteven D. Levitt and Stephen J. Dubner, Freakonomics: A Rogue EconomistExplores the Hidden Side of Everything, 2005. (中译本《魔鬼经济学》斯蒂夫 • 列维特、斯蒂芬 • 都伯纳著，广东经济出版社，2006 年 1 月。)Steven D. Levitt and Stephen J. Dubner, SuperFreakonomics: GlobalCooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy LifeInsurance, 2009.（中译本，《超爆魔鬼经济学》，斯蒂夫 • 列维特、斯蒂芬• 都伯纳著，中信出版社，2010 年 1 月。）Ian Ayres, Super Crunchers: Why Thinking-By-Numbers is the New Way ToBe Smart, 2007. (中译本《超级数字天才》，伊恩 • 艾瑞斯著，中国青年出版社，2008 年 1 月。)Raymond Fisman & Edward Miguel, Economic Gangsters: Corruption,Violence, and the Poverty of Nations, 2010.(中译本:《经济黑帮：腐败、暴力的黑帮经济学》，中信出版社。）Abhijit V. Banerjee & Esther Duflo, Poor Economics A Radical Rethinking ofthe Way to Fight Global Poverty, 2011.(中译本:《贫穷的本质：我们为什么摆脱不了贫穷》，中信出版社。）Angus Deaton, The Great Escape:Health,Wealth,and the Origins ofInequality,2015.(中译本: 《逃离不平等: 健康、财富及不平等的起源》，中信出版社。）Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep. 4th, 2017 37 / 41
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Logistics to the Course
What I promise to offer you
Prepare lectures as well as possible.One to one interaction on topics covered in the course, especiallyfor your own topics.Help you start to using Stata or R to analyze some popular datasets in China.A good score?
It depends on you.
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Logistics to the Course
What I expect to you
Class participation with a little bit aggressive attitude.More questions, more scores!Interrupt me as often as necessary!Got a dumb question? Assume that you are are the smartest person inclass and you eventually will be!
Read required materials and finish homework.
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Logistics to the Course
Evaluation
Class participation (10%)Homework(10%)Midterm Exam: (20%)Final Exam: (30%)Independent Project Report(30%)
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Logistics to the Course
Welcome contact me and TA
Any Questions?
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