Specification of an economic model

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Reference no: EM131862086

Introduction - Types of Economic Data

(1) Time Series Data - Data observed at equally spaced intervals, ordered in time.

(2) Cross-Section Data - Data from a survey of households or firms collected at one point in time.

(3) Panel Data - Combined time-series and cross-section data.

The Steps in Econometric Work -

STEP 1 - Specification of an economic model

Consider two variables y and x.

A relationship has the general form

y = f(x)

STEP 2 - Specify a statistical or econometric model

Relationships among economic variables are inexact.

To recognize this add an error to obtain the model.

STEP 3 - Estimation of the parameters β₁ and β₂

Do the calculations given by the estimation rule.

This gives numeric estimates denoted by b₁ and b₂.

STEP 4 - Model Evaluation

Hypothesis Testing - Example - is the slope coefficient greater than one ?

Diagnostic Testing - Example - are the errors normally distributed ?

Prediction - Example - predict the level of the dependent variable y for a given value of the explanatory variable x.

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Reference no: EM131862086

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