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Introduction To Econometrics and Operations Research

This document provides an introduction to an econometrics and operations research course. It outlines the instructor, office hours, and contact information. It also lists required textbooks and describes how student performance will be assessed. The document then covers key topics that will be discussed in the course, including what econometrics is, building econometric models, data types, simple regression models, estimating regression models using ordinary least squares, interpreting regression results, and important variable and model classifications.

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176 views28 pages

Introduction To Econometrics and Operations Research

This document provides an introduction to an econometrics and operations research course. It outlines the instructor, office hours, and contact information. It also lists required textbooks and describes how student performance will be assessed. The document then covers key topics that will be discussed in the course, including what econometrics is, building econometric models, data types, simple regression models, estimating regression models using ordinary least squares, interpreting regression results, and important variable and model classifications.

Uploaded by

khongaybyt
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 28

Introduction to Econometrics

and Operations Research


Dobromi Serwa
Institute of Econometrics

Office hours: Friday 17:00,
Room 219 (building M)

Email: dserwa@sgh.waw.pl
WWW: http://akson.sgh.waw.pl/~dserwa


2
Resources
akson.sgh.waw.pl/~dserwa/ex.htm

J. Wooldridge (2009) Introductory
Econometrics. A Modern Approach. South-
Western CENGAGE Learning, 4th edition.

N. Balakrishan, B. Render, R. Stair (2007)
Managerial Decision Modeling with
Spreadsheets, Pearson Prentice Hall.

3
Performance Assessment
Final grade:
Exam 80% (20 points)
Exercise classes 20% (5 points)

Limit: 10 points
4
Lecture 1
Reading assignments: Wooldridge [Ch. 1, 2, 3,
10]

For the next lecture : Wooldridge [Ch. 4, 6, 7,
9.1]
5
What is Econometrics?
Economics
theoretical models
Mathematical statistics
experimental data
Econometrics
non-experimental data
multivariate regression models
applied models


6
Econometrics
Estimating parameters of economic models

Testing economic theories & hypotheses

Forecasting & simulating economic variables

7
Additional topics
Input-output analysis
macroeconomic model
forecasting & simulations

Operations research
optimization problems
linear programming problems



8
Steps in empirical economic analysis
Literature review & hypotheses
Building econometric models
Building datasets
Estimating models
Testing model quality
Applying models
(e.g. testing hypotheses, forecasting)

9
Data
Cross-sectional data sets
Time series data sets
Panel (or longitudinal) data sets

Example: how consumption depends on
earnings
Monthly data
Multiple households
Monthly data for multiple households


10
Simple regression model
Linear regression:


Dependent, explained, response, predicted
variable (regressand)
Explanatory, control, independent, predictor
variable (regressor)
Random error, disturbance term
Slope parameters + intercept parameter
11
Estimating regression models
Many methods available:
Least squares, maximum likelihood, least absolute
deviations, generalized method of moments, etc.

Most popular: Ordinary Least Squares
Minimizing the sum of squared residuals
12
Fitted values and residuals
Simple regression:

OLS fits the model to data by minimizing sum of squared residuals
0
2
4
6
8
10
12
14
0 1 2 3 4 5 6 7 8 9
y

x
residual
observed y
predicted y
13
Estimation (1)
Regression

Database and matrix notation




1
1
1
14
Estimation (2)
Matrix notation




OLS formula

15
Example
Time-series data






We try to fit the trend line:

y time
2 1
3 2
5 3
4 4
6 5
4 6
0
1
2
3
4
5
6
7
1 2 3 4 5 6
y

time
fitted trend line
16
Example (2)
Matrix notation and formulas
17
Assumptions for OLS
18
Assumption of OLS (2)
19
Properties of OLS
20
Possible problems with OLS
Endogeneity of explanatory variables
Multicollinarity of explanatory variables
Missing important variables
Heteroskedasticity of disturbances
Autocorrelation of disturbances
Structural breaks & wrong functional form

21
Interpretation of estimates
Partial effects (ceteris paribus)


Intercept - predicted value of y when all
variables equal 0.
Holding other factors fixed (ceteris paribus),
one-unit increase in x translates into
an increase of y by a units (on average!)
causality?

22
y x
j j
a
Interpretation
Example:
Survey of 1000 families and their monthly earnings (in
USD) and consumption (in USD).
Estimated model:


Interpreatation
For an average family in this survey, 1 USD increase of
monthly income increases consumption by 70 cents.
An average family in this survey would consume 230 USD
even when there was no income.

23
e INCOME CONS 7 . 0 230
Some important statistics
Theoretical values o y


Residual = observed y predicted y


Sum of squared reisiduals (SSR)
24
Some important statistics
Variance of the error term


Standard error of the regression



25
Precision of estimates
Variance of parameter estimates

and its estimate

Standard deviation of the estimate

where is the j+1 diagonal element of
26
1 2 2
) ( )

X X D
1 2 2
) ( )

X X S D
1 , 1
)

j j j
d SE a
1 , 1 j j
d
)

2
D
Precision of estimates (2)
Relative standard deviation of the estimate



t-ratio

27
% 100

(
)

(
j
j
j
SE
RSE
a
a
a
)

(
j
j
j
SE
t
a
a
a
Important classifications
Variables
exogenous, endogenous
qualitative, quantitative
current, lagged
Models
time-series, cross-sectional, panel-data
static, dynamic
non-linear, linear (in parameters, in variables)
single-equation, multi-equation
deterministic, stochastic

28

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