Chapter 1

Question 1

Describe the key difference between experimental and non-experimental data

Answer 1

Experimental data collected under controlled conditions in a laboratory environment through an experiment, whereas non-experimental data are not accumulated in such a manner.

Question 2

What is empirical analysis in economics?

Answer 2

A study that uses data in a formal econometric analysis to test a theory, estimate a relationship, or determine the effectiveness of a policy.

Question 3

List the steps in empirical economic analysis

Answer 3

1. The formulation of question of interest
2. The construction of a formal economic model
3. The construction of an econometric model
4. The postulation of hypothetical values for the unknown parameters (or betas)
5. The gathering of data
6. The estimation of the parameters in the econometric model (the betas)

Question 4

Describe the features of a cross-sectional data set

Answer 4

• A sample of individuals or a variety of other units taken at a given point in time (minor timing differences are ignored)
• Random sampling (each observation is drawn at random from the population, and that each draw is independent of all other draws + draws are equiprobable)

Question 5

Describe the potential issues that may arise with cross sectional data

Answer 5

• Sampling may not be random after all due to unavoidable biases i.e wealthier families less open about their income (a sample selection problem)
• Observations may be related to each other

Question 6

Describe the features of a time series data set

Answer 6

• Consists of observations on a variable or several variables over time i.e stock prices
• Data collected at a set time frequency

Question 7

Describe potential issues that may arise with time series data

Answer 7

• The need for de-seasonalization

- Economic observations are not independent across time

Question 8

Describe the features of a pooled cross section data set

Answer 8

• Contains both cross-sectional and time series features

Example: a number of schools are sampled for certain characteristics in 1960 and, after an education policy change, are again sampled for the same characteristics in 1980.

• The aggregation of two cross-sections makes for a much larger sample size.
• Useful for analysing how a key relationship has changed over time

Question 9

Describe the potential issues that may arise with pooled cross section data

Answer 9

• Variables can still change over time irrespective of the event being analysed

Question 10

Describe the features of a panel data set

Answer 10

• Consists of a time series for each cross-sectional member

Example: Financial information for certain individuals over time

• The same cross-sectional members are observed over time

Question 11

Advantages of using a panel data over pooled cross-sectional data?

Answer 11

• Panel data allows for control over the unobserved characteristics of units.
• Panel data is usually of a longer timespan, thereby allowing for the study of lags in behavior

Question 12

How is a causal effect established between two variables?

Answer 12

If there is sufficient correlation, not only association

Question 13

Define the term ceteris paribus

Answer 13

All else being equal