ECONOMETRICS Flashcards
It deals with predicting the likelihood of future events. It is primarily a theoretical branch of mathematics, which studies the consequences of mathematical definitions.
Probability
It involves the analysis of the frequency of past events. It is primarily an applied branch of mathematics, which tries to make sense of observations in the real world.
Statistics
Axioms of Probability
P(a) ≥ 0
Sample Space P(S) = 1
If disjoint, P(A1UA2UA3) = P(A1) + P(A2) + P(A3)…
Is the probability that the event will occur given the knowledge that an event A has already occurred. This probability is written P(B|A), notation for the probability of B given A.
Conditional Probability
It states that when there are n ways to do one thing, and m ways to do another thing, then the number of ways to do both the things can be obtained by taking their product. This is expressed as n×m.
Principles of Counting
A set of items in which both composition and order are important.
Permutation
Often the order of selection is not important and interest centers only on the selected r objects. That is we are interested in the number of subsets of size r that can be selected from a set of n different objects.
Combination
This method is appropriate when choices must be made from two or more distinct groups. If there are m possible selections in one group and n possible selections in a second group, the total number of arrangements is m x n.
Multiplication Method
T OR F: Economics is an exact science.
False (Social Science)
T OR F: The Law of Demand states that price and quantity demanded are inversely related.
True
T OR F: The methodology of econometrics starts with the analysis of economic theories.
True
T OR F: In inferential statistics we make inferences on economic theories using the complete set of data or population. .
False
T OR F: Independent variable is also termed as predictor variable
True
Econometrics means _________.
Economic Measurement
It consists of the application of mathematical statistics to economic data to lend empirical support to the models constructed by mathematical economics and to obtain numerical results.
Econometrics
Methodology of Econometrics
- Statement of Theory/Hypothesis
- Specification of Mathematical Model of the Theory
- Specification of the Econometric Model of Consumption
- Obtaining Data
- Estimation of the Econometric Model
- Hypothesis Testing
- Forecasting or Prediction
- Use of the Model for Control or Policy Purposes
Types of Econometrics
Theoretical Econometrics and Applied Econometrics
Is concerned with the development of appropriate methods for measuring economic relationships specified by the economic models. In this aspect, econometrics leans heavily on mathematical statistics.
Theoretical Econometrics
It uses the tools of theoretical econometrics to study some special fields of economics and business, such as the production function, investment function, demand and supply functions, portfolio theory, etc.
Applied Econometrics
The bread-and-butter tool of econometrics.
Regression Analysis
The term regression analysis was originally used in 1885 by ____________ in his analysis of the relationship between the heights of children and parents. He formulated the “law of universal regression”, which specifies that “each peculiarity in a man is shared by his kinsmen, but on average or less degree.”
Sir Francis Galton
This essentially deal with random or stochastic variables, that is, variables that have probability distribution.
Statistical relationship among variable
This deal with variables, but these are not random or stochastic.
Deterministic Dependency
Its primary objective is to measure the strength or degree of linear relationship between two variables. .
Correlation analysis
It measures the strength of (linear) association
Correlation Coefficient
Is a set of observations on the values that a variable takes at different times. Such data maybe collected at regular time intervals, such as daily (e.g. stock prices, weather reports), weekly (money supply figures), monthly (unemployment rate, the Consumer Price Index CPI), quarterly (GDP), annually (government budgets) quinquennially, that is, every 5 years (e.g. census of manufactures) or decennially (the census of population)
Time series data
a time series is _________ if its mean and variance do not vary systematically overtime.
Stationary
Are data on one or more variables collected at the same point in time, such as the census on population and housing conducted by the Philippine Statistics Authority.
Cross-section data
Are elements of both time series and cross-section data.
Pooled data
It is the highest level of measurement.
Ratio scale
It satisfies the last two properties of the ratio scale variable but not the first. Thus, the distance between two time periods, say (2020-1994) is meaningful but not the ratio of two time periods (2020/1994).
Interval Scale
A variable belongs to this category only if it satisfies the third property of the ratio scale (natural ordering). Examples are grading systems (A, B, C grades) or income class (upper, middle, lower). For these variables the ordering exists but the distance between the categories cannot be quantified.
Ordinal Scale
Variables in this category have none of the feature of the ratio scale variables. Variables such as gender, and marital status simply denote categories. Nominal level of measurement are observation of qualitative variable that can be classified and counted.
Nominal Scale
Another term for dependent variable.
Regressand
Another term for independent variable.
Explanatory variable or regressor
Is a counting technique in which order makes a difference. It is distinguished from both a permutation and a combination by the fact that duplication is allowed. In the case of this counting technique, the same element can be used more than once.
Multiple Choice Arrangement
