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Applied Micro-EconometricsLecture 1: Introduction
Zhaopeng Qu
Business School,Nanjing University
Sep.19,2019
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Outlines
Outlines
1 Introduction: Interesting and Important Questions
2 What is Econometrics?
3 who should take the course?
4 How to learn?
5 The Structure of Economic Data
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Introduction: Interesting and Important Questions
Introduction: Interesting and Important Questions
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Introduction: 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: Interesting and Important Questions
How can we make a rational choice?
Anecdotes(轶事）or Intuition(直觉）eg. “My grandmother smoked two
packs a day and lived until she was95 years old.”
TheorySystematical methodology: Hypothesis, Logical
deduction...
Empiricspractical experiences,statistical inference from
data.
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Introduction: Interesting and Important Questions
Classical Question: Human Capital v.s Signal
A common phenomenon in labor markets can be observed allover the
world.
Higher education, Better pay!Human Capital
Education improves work productivity.Signal
Education does not increase the productivity. It simply serves
as asignal of the individuals’ innate ability.
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Introduction: Interesting and Important Questions
Hot Public Policy Debate: Minimum Wage andUnemployment
Classical Supply-Demand Model tell us
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Introduction: Interesting and Important Questions
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: Interesting and Important Questions
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: Interesting and Important Questions
Other Similar Questions
Air pollution and Health?Quantitative Easing(QE) on economic
growthCredit regulation on housing priceCoupon on products
salesTrade War...
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Introduction: 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.
Econometrics
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What is Econometrics?
What is Econometrics?
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What is Econometrics?
Introduction: Econometrics
It could includeTesting economic theories.Using data to give
policy recommendations.Estimating causal effects.Using data to
forecast future values of economic variables.
Haavelmo (1944) states: “The method of econometric researchaims,
essentially, at a conjunction of economic theory and
actualmeasurements, using the theory and technique of
statisticalinference as a bridge pier.”
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What is Econometrics?
Introduction: Econometrics
The term is attributedto Ragnar Frisch;1969 Nobel
Prizeco-winner（the firstyear for Economics)The term is
specialenough in socialscience and science.
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What is Econometrics?
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?
Introduction: Econometrics
“Ask a half dozen econometricians what econometrics is—youcould
get a half dozen different answers.
At a broad level, it is a science and art of using
economictheory and statistical techniques to analyze economic
data.”- Stock & Watson (2012)
My View:In general, searching for economic logics from data.
More and more prevalence inother social science such as
political science, sociology,law and education studies etcand
business practice, such as Data Science.
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What is Econometrics?
Introduction: Econometrics
Social science(firstly start 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.
Obviously, Econometrics are playing a key role in these
tworevolutions.
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What is Econometrics?
Applied Econometrics
V.S. Theoretical EconometricsMore orientated to applied work,
such as choice of technique andinterpretation of research
finding.But it should be also based on a solid conceptual
foundation andsome practical experiences plus a little bit skills
of computer.It is so overwhelming in all applied field today such
as Labor,Development, Industrial, Public and International Trade,
etc.
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who should take the course?
who should take the course?
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who should take the course?
The Purpose
To build a bridge from learning courses to doing researchInquire
some basic instruments in empiricist’s toolbox.Read papers to
develop a good taste and identify some goodresearch topics.Use
Microeconometrics and Stata (or R) to carry out yourown empirical
projects.
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who should take the course?
For Whom?
Who want to 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.
The most difficult thing for us is how to do good
empiricalresearch.“Learning by doing”is a more effective way to
learn.
Doing good research (a good publishing record ) is the
bestsignal of your academic ability.
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who should take the course?
For WhomWho want to enter professional market: Mastering
Econometricscan get you a better 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
firms even hire economists to lead theirspecial R&D department.
Such as
Google: Hal Varian(Berkeley)Microsoft: Susan
Athey(Standford)eBay:
Besides in finance, Big data are also grow vigorously
inConsulting and Business areas.
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who should take the course?
For Whom
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 topics.Two Interesting
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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who should take the course?
For Whom
Whatever you would like to be
Enjoy doing something seriously and cultivate a specialquality
for yourself!
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who should take the course?
For Whom
Whatever you would like to be
Every choice you make has an opportunity cost,try your bestto
make a wise one.
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who should take the course?
Hard and Soft Skills
You SHOULD learn or improve several important skills
duringcollege.
Hard SkillsLanguageComputer
Soft SkillsCritical ThinkingPresentationWritingTeamwork
Fortunately, you will learn/practice almost all above skillsin
our class.
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who should take the course?
Conclusion
In a word, Introduction to Econometrics is a very very
veryimportant and interesting course,
Please work hard on it!Please enjoy working hard on it!
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How to learn?
How to learn?
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How to learn?
How to learn
Read required and related materials before lecture.Get
well-prepared for the presentation before the class.Discuss with
your classmates often.Make good friends with data and Stata or
RThink about the content related with your personal knowledgeand
experience.Whenever you have questions, ask them.
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How to learn?
The Procedure:
The First Part-LectureIntroduce the underlying theoretical
problems briefly andfocus on the empirical strategy heavily.Look at
some specific examples in classical papers withinteresting topics
in our field.
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How to learn?
The Procedure:
The Second Part: Presentation and Computer LabIn addition to
making an introduction to Stata and R, wefocus on replication some
classical papers.This is more efficient way to learn applied
work.
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How to learn?
The Procedure:
The Third Part: Your Own ResearchA Research Proposal: in mid
termAnd Preliminary Results: in the endGoal: A decent term
paper
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How to learn?
The Procedure:
Last but not least: Your Presentation
StructureMotivationLiteratureEmpirical StrategyDataResults
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How to learn?
Prerequisite
I assume that You should be comfortable some basic concepts
ofprobability theory and statistics, such as
expectationvarianceprobability density function,
p.d.f.cumulative distribution function, c.d.fcovarianceL.L.N and
C.L.TEstimatorUnbiasedConsistentAsymptotic NormalityHypothesis
test
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How to learn?
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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How to learn?
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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How to learn?
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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How to learn?
Reference Software Books
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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https://www.datacamp.com
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How to learn?
Interesting Books
Steven D. Levitt and Stephen J. Dubner, SuperFreakonomics:
GlobalCooling, Patriotic Prostitutes, and Why Suicide Bombers
Should Buy LifeInsurance, 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 New Way ToBe 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 Radical Rethinkingof
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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How to learn?
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.
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How to learn?
What I expect to you
Class participation with a little bit aggressive attitude.More
questions, more scores!Interrupt me as often as necessary!Got a
dumb question?Assume that you are are the smartestperson in class
and you eventually will be!
Read required materials and finish homeworks.
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How to learn?
Evaluation
Class Participation (10%)Presentation(20%)Midterm: A Proposal
and Presentation (30%)Final Exam: Preliminary Results (40%)
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How to learn?
Schedual
Class Participation (10%)Presentation(20%)Midterm: A Proposal
and Presentation (30%)Final Exam: Preliminary Results (40%)
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How to learn?
Q & A
Any Questions?
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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（I）: Structure
Data StructureCross-sectional dataTime series dataPooled
cross-sectional dataPanel data
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The Structure of Economic Data
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
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The Structure of Economic Data
1.Cross-Sectional Data: (Main Focus)
x = STRatio; y = TestScore; N = 420Zhaopeng Qu (Nanjing
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The Structure of Economic Data
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
2.Time Series Data:(Not Cover)
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The Structure of Economic Data
3.Pool(Repeat) Cross-Sectional Data(Pseudo-Panels)
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
3.Pool Cross-Sectional Data
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The Structure of Economic Data
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
4.Panel(or Longitudinal) Data
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The Structure of Economic Data
Econometrics: sub-fields or sub-course
Micro-EconometricsCross-SectionalPool Cross SectionalPanel(large
N, small T)
Macro-EconometricsTimes seriesPanel(small N, large T)
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The Structure of Economic 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 it statesassumptions of a particular
method, its properties etc.We could call theoretical
econometricians as the producerof econometrics.
Applied EconometricsMore orientated to applied work, such as
choice of techniqueand interpretation of research finding.But it
should be also based on a solid conceptual foundationand some
practical experiences plus a little bit skills ofcomputer.Most of
us are the consumers of econometrics.
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The Structure of Economic Data
Types of Data(II):Source
Traditional Collecting：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 DataStocks,futures or other financial tractional
data
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The Structure of Economic Data
Data in China
Survey DataChina Household Income Project(CHIP)-Pool Cross
SectionalChina Family Panel Survey(CFPS)-PanelChina Health and
Retirement LongitudinalStudy(CHARLS)-Panel
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:Taobao,JD,Movie Data on Douban.comPM2.5Night-Lights
Data
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OutlinesIntroduction: Interesting and Important Questions What
is Econometrics?who should take the course? How to learn?The
Structure of Economic Data
![Econometrics of Network Models - UCLuctpand/eswc_dePaula.pdf · (de Paula and Scheinkman [2010], Pomeranz [forthcoming])-Example: Propagation of micro shocks in production and financial](https://img.pdfslide.us/doc/110x75/5f9bf23712e8fb390c4410ce/econometrics-of-network-models-ucl-uctpandeswc-de-paula-and-scheinkman-2010.jpg)
