introduction to econometrics - github pages · 2019-12-25 · introduction: econometrics...
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Introduction to EconometricsLecture 0: Introduction
Zhaopeng Qu
Business School,Nanjing University
Sep.5 2019
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Outlines
Outlines
1 Introduction: A Scientific Framework of Making Rational Choice
2 What is Econometrics?
3 Why and who should take the course?
4 Logistics to the Course
5 The Structure of Economic Data
6 Homework(not required)
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Introduction: A Scientific Framework of Making Rational Choice
Introduction: A Scientific Framework of MakingRational Choice
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Introduction: A Scientific Framework of Making Rational Choice Interesting and Important Questions
An Complex and Dynamic World
Living in an complex and dynamic world, we need makingrational decisions.
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Introduction: A Scientific Framework of Making Rational Choice Interesting and Important Questions
Question #1 in Textbooks: Student’s Performance andClass Size
Economics suggests important relationships, often with policyimplications, but virtually never suggests quantitative magnitudesof causal effects.A Classical Issue in Economics of Education: Student’s Performanceand Class Size
Turn it into an empirical or policy question: What is the quantitativeeffect of reducing class size on student achievement?Like by 5 student per class? or 10?
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Introduction: A Scientific Framework of Making Rational Choice Interesting and Important Questions
Question #2: Discrimination in the Market?
Discrimination is the situation where people who are presumed tobe equally productive or have equally productive capacity, gettreated differently by the market.Because of their gender, their religion, sexual orientation or thecolor of their skin, whatever even though these characteristics areirrelevant for the purpose being considered.
Racial Discrimination in the market for Home Loans.Gender Discrimination in Labor MarketHukou Discrimination in China
To see if there is a difference in the probability of being deniedfor otherwise identical applicants and, if so, whether thisdifference is large or small.
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Introduction: A Scientific Framework of Making Rational Choice Interesting and Important Questions
Question #3: Cigarette Taxes and Smoking?
Cigarette smoking is a major public health concern worldwide.medical expenses of caring for those made sick by smoking.nonsmokers breathe secondhand cigarette smoke.
Basic economics says : cigarette prices go up, consumption willgo down.
But by how much? If the sales price goes up by 1%, by whatpercentage will the quantity of cigarettes sold decrease?The percentage change in the quantity demanded resulting from a 1%increase in price is the price elasticity of demand,the numericalvalue, which economic theory can never provide.
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Introduction: A Scientific Framework of Making Rational Choice Interesting and Important Questions
Other Similar Questions
Air pollution and Health?Credit regulation on housing priceCoupon on products salesTrade War...
Living in such a“messy”world, we need making rationaldecisions.
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Introduction: A Scientific Framework of Making Rational Choice 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 may provide clues about the direction ofthe answer.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 questionand a measure of how precise the answer is.
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
How can we make a rational choice?
Anecdotes(轶事）or Intuition(直觉）Theory(理论/逻辑推理）
Systematical methodology: Hypothesis, Logical deduction...Empirics（数据实证）
statistical inference from data.
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
An Example: Smoke and Mortality
Anecdotes(轶事）or Intuition(直觉）eg. “My grandmother smoked two packs a day and lived until she was95 years old.”
Theory因为香烟中含有尼古丁、焦油等致癌物，所以...
Empirics做实验或者通过抽样调查等方式收集数据，再用统计或计量方法来验证。
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
Classical Theory Question: Human Capital v.s Signal
A common phenomenon in labor markets can be observed allover the world.
Higher education, Better pay!
Two classical theory to explainHuman Capital: Education improves work productivity.Signal: Education does not increase the productivity. It simply servesas a signal of the individuals’ innate ability.
Question: which one is right?
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
Hot Public Policy Debate: Minimum Wage andUnemployment
Classical Supply-Demand Model tell us
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
Hot Public Policy Debate: Minimum Wage andUnemployment
One famous empiricalevidence challenged thetheory by Card andKrueger(1994)They found thatincreases in theminimum wage doNOT lead to job losses.
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
Warp Up: Theory, Empirics and Math
Economic theories sole are not enough to explain socialphenomenon.
It should be tested by empirical evidence.When having competing theories, we need more test tojustify which one is more likely right.
When mechanism is clear, math is unnecessary, but empiricalevidence is unexpendabley.
Having a mathematical model is better, but sometimes notnecessary⋯
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Introduction: A Scientific Framework of Making Rational Choice A Scientific Framework to Analysis
An Scientific Workflow to Analyzing
By Intuition: Propose meaningful or interesting questions(It doesmatter or we care about)By Theory: Obtain a preliminary conclusion or proposal anhypothesisBy Empirics: use data and quantitive methods to test yourtheory or conclusion.
Intuition Theory Empirics
It is the job ofEconometrics
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What is Econometrics?
What is Econometrics?
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What is Econometrics? Definitions
Introduction: Econometrics
The term is attributed toRagnar Frisch(1895-1973);1969 Nobel Prize co-winner（the first year for Economics)
Although the term coins by acombination of economics andmetrology, it is special enough insocial science and science at thattime.
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What is Econometrics? Definitions
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.”
(Ragnar Frisch, Econometrica, 1933, volume 1, pages. 1-2)
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What is Econometrics? Definitions
Introduction: Econometrics
Trygve Haavelmo(1911-1999)1989 Nobel Prize winner“The method of econometricresearch aims, essentially, at aconjunction of economic theory andactual measurements, using thetheory and technique of statisticalinference as a bridge pier.”(Econometrica, 1944, volume 12,pages. 1-2)
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What is Econometrics? Definitions
Introduction: Econometrics
James Stock and Mark Watson(2014)“Ask a half dozen econometricians what econometrics is—
you could get a half dozen different answers.”“At a broad level, it is a science and art of using economic
theory and statistical techniques to analyze economic data.”
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What is Econometrics? Definitions
Introduction: Econometrics
My View: In general, a series of scientific methods tosearching for economic logics from data.It could include two jobs
Making a causal inference,such asTesting economic theories.Estimating causal effects.Using data to give policy recommendations.
Forecasting or predicting future valuesMore and more prevalence in
other social science such as political science, sociology,law and education studies etcand business practice, like the hottest one: Data Science.
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What is Econometrics? Econometrics, Social Science and Big Data.
Econometrics and methodological revolution in SocialScience
Social science(firstly started 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. (Schonberger, 2013)
Obviously, Econometrics are playing a key role in these tworevolutions.
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What is Econometrics? Econometrics, Social Science and Big Data.
Big Data,Data Science and Econometrics
The name comes from computer scientists working to doaggregation on data that is too big to fit on a single machine.Data Science is the umbrella term for inference in a world thatis messier that in old statistic textbook.Big Data is just Applied Data Science,especially focused onbusiness and industrial applications.
Inference the structural models: Variable Selection and DimensionReductionprediction: Probabilistic Prediction and Classification Rules
Big Data toolspartially straight out of previous statistics and econometricsclasses(Cluster, Regression and Matching)some are totally new(such as decision trees and neural networks).
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What is Econometrics? Econometrics, Social Science and Big Data.
Big Data,Data Science and Econometrics
There are many labels for what we do...EconometricsStatisticsData Mining/Big Data/Data ScienceMachine Learning(ML)Artificial Intelligence(AI)
Along this spectrum, you move from heavy focus on what thingsyou are measuring (what real phenomena they correspond to) toa more practical ‘useful is true’pattern discovery approach.The similarities are much bigger than any distinctions.
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What is Econometrics? Econometrics, Social Science and Big 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 itstates assumptions of a particular method, its propertiesetc.We could call theoretical econometricians as theproducerof econometrics.
Applied EconometricsMore orientated to applied work, such as choice oftechnique and interpretation of research finding.But it should be also based on a solid conceptualfoundation and some practical experiences plus a littlebit skills of computer.Most of us are the consumers of econometrics.
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Why and who should take the course?
Why and who should take the course?
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Why and who should take the course? Why important?
Why Econometrics is so important?
Several Common Questions about Econometrics?Why should we study econometrics?How is studying econometrics helpful in understandingvarious problems?especially, can one excel in the field without learningeconometrics?
The answer to the last question is simple.NO! because one hardly to learn modern economics withoutthe knowledge of econometrics.
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Why and who should take the course? Why important?
Why Econometrics is so important?
Econometrics is one of three core courses required in almostevery department 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?
Who pursue an academic career
Congratulations! You are in one of the most promising andinternationalizing areas in economic research of China.
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.
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Why and who should take the course? For Whom?
Who enter industry job marketWho want to work in industry: mastering econometrics can helpyou get a good 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 giants 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?
Who look for fun
Introduction to Econometrics could not be a boring anddemanding variant of a mathematics course, but interestingand having fun.You can just enjoy it by thinking in an empiricist’s way in yourdaily 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 storiesInteresting Examples
Eg. Crime and Abortion in Freakonomics written bySteven Levitt.Eg. What is the value to be the president’s son(ordaughter)? in Economic Gangster written by RaymondFisman and Edward Miguel.
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Why and who should take the course? Direction and Attitude
Whoever and Whatever
Whoever you would like to be or whatever you want
Every choice you make has an opportunity cost,try your bestto make a wise one.
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Why and who should take the course? Direction and Attitude
Whoever and Whatever
Whoever you would like to be or whatever you want
Enjoy doing something seriously and cultivate a specialquality for yourself!
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Why and who should take the course? Direction and Attitude
Hard and Soft Skills
You SHOULD learn or improve several important skills duringcollege.
Hard SkillsLanguageComputer
Soft SkillsCritical ThinkingPresentation and WritingTeamwork
Fortunately, you will learn/practice almost all above skillsin our class.
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Why and who should take the course? Direction and Attitude
Conclusion
In a word, Introduction to Econometrics is a very very veryimportant and interesting course,
Please think over before your take it!Once you take it, please work hard on it!And please enjoy working hard on it!
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Logistics to the Course
Logistics to the Course
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Logistics to the Course
About Me and our TA
My name is Zhaopeng QuPosition and Affiliation: Associate Professor, Institute of PopulationStudies, Business School.Research Fields: Labor Economics and Applied EconometricsOffice: Room 2017, Anzhong BuildingOffice Hour: Make an appointment in advanceTel: 83621349Email: [email protected]
TA: Zixuan Zhang and Yi Wanggraduate studentsgood at StataEmail: [email protected](only for homework)
Online resourcesOur Course Website: https://byelenin.github.io/Metrics_2019/Wechat group: discuss anything about the course.
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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
random variableexpectationvarianceprobability density function, p.d.f.cumulative distribution function, c.d.fcovarianceL.L.N and C.L.TEstimatorUnbiased and ConsistentAsymptotic NormalityHypothesis test
We will not review these basic concepts and formulas in thelectures, may be in the recite sections by TAs(it depends). Youshould review it by yourself anyway.
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Logistics to the Course
Reference TextbooksRequired 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 TextbooksSupplementary textbook
Joshua D. Angrist & Jorn-Steffen Pischke, (2014). Mastering ’metrics:The Path from Cause to Effect. Princeton University Press. （中译本：《精通计量：从原因到结果的探寻之路》，格致出版社，2018）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 thatprovides everything you need for data analysis, datamanagement, and graphics.R is a free software and useful for statistical study andeconometrics.
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Logistics to the Course
Reference Books for Software
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 Books for ReadingSteven D. Levitt and Stephen J. Dubner, SuperFreakonomics: GlobalCooling, Patriotic Prostitutes, and Why Suicide Bombers Should BuyLife Insurance, 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 NewWay To Be 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、暴力的经济学》，中信出版社。）Abhijit V. Banerjee & Esther Duflo, Poor Economics A RadicalRethinking of the 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。）
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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.
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep.5 2019 45 / 64
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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! (but I know most of youare not comfortable to this)Got a dumb question? Please assume that you are thesmartest person in the class, and you eventually will be!
Read required materials and finish homeworks.
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Logistics to the Course
Evaluation
Class Participation (10%)Homework(20%)Independent(or Team) Project Report(30%)Final Exam: (40%)
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep.5 2019 47 / 64
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Logistics to the Course
Welcome contact me and TAs
Any Questions?
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep.5 2019 48 / 64
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The Structure of Economic Data
The Structure of Economic Data
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The Structure of Economic Data Types of Data(II): Structure
Introdution
Data StructureCross-sectional dataTime series dataPooled cross-sectional dataPanel data
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The Structure of Economic Data Types of Data(II): Structure
1.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.5 2019 51 / 64
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The Structure of Economic Data Types of Data(II): Structure
1.Cross-Sectional Data: (Main Focus)
x = STRatio; y = TestScore; N = 420Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep.5 2019 52 / 64
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The Structure of Economic Data Types of Data(II): Structure
2.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.
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The Structure of Economic Data Types of Data(II): Structure
2.Time Series Data:(Not Cover)
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The Structure of Economic Data Types of Data(II): Structure
3.Pool(Repeat) Cross-Sectional Data(Pseudo-Panels)(NotCover)
Pooled cross sections can be generated by combining two ormore years 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
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The Structure of Economic Data Types of Data(II): Structure
3.Pool Cross-Sectional Data(Not Cover)
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The Structure of Economic Data Types of Data(II): Structure
4.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
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The Structure of Economic Data Types of Data(II): Structure
4.Panel(or Longitudinal) Data
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The Structure of Economic Data Types of Data(II): Structure
Corresponding sub-fields or sub-course
Micro-EconometricsCross-SectionalPool Cross SectionalShort Panel(large N, small T)
Macro-EconometricsTimes seriesLong Panel(small N, large T)
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The Structure of Economic Data Types of Data(II)
Source
Traditional Collecting Way：Survey(调查）Administrative data(官方业务数据）
Collecting Data in Digital Times：Mass or Big data:
Online documentsSocial MediaGeolocations or Geographic data
High Frequency DataStock,future or other financial tractional data
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The Structure of Economic Data Types of Data(II)
Data in China
Survey DataChina Household Income Project(CHIP)China Family Panel Survey(CFPS)China Health and Retirement Longitudinal Study(CHARLS)
Administrative data:Census: 全国人口普查数据；全国 1% 人口抽样调查；工业企业数据库；海关交易数据库；
Online data:Tabao,JD,TmallMovie Data on Douban.com(豆瓣电影数据）Air Quality: PM2.5(空气质量数据）Night-Lights Data(夜间灯光数据）Land Transaction Markets(土地交易市场数据）
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Homework(not required)
Homework(not required)
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Homework(not required)
Homework
到如下数据库网站选择其一登记注册China Household Income Project(CHIP)：中国居民收入调查China Health and Nutrition Survey(CHNS)：中国健康与营养调查China Family Panel Survey(CFPS)：中国家庭追踪调查China Health and Retirement Longitudinal Study(CHARLS) ：中国健康养老追踪调查Chinese General Social Survey(CGSS)：中国综合社会调查China Labor-force Dynamics Survey(CLDS)：中国劳动力动态调查China Household Financial Survey(CHFS): 中国家庭金融调查
Zhaopeng Qu (Nanjing University) Introduction to Econometrics Sep.5 2019 63 / 64
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Homework(not required)
Homework
了解调查的目的和主要内容，以及抽样范围、方式、样本量等等基本信息，判断该数据属于哪种数据结构。下载调查的问卷，详细了解调查有哪些具体的信息。
首先确定自己感兴趣的问题，然后到问卷中去寻找。或者先看问卷，找到自己感兴趣的具体信息。下载相应数据，进行初步的数据清理和统计分析 (待上机课之后）为期末的研究项目做准备。
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