# Class Notes Flashcards

1
Q

Three Major Uses of Econometrics

A
1. ) Describing Economic Reality
2. ) Testing hypotheses about economic theory
3. ) Forecasting future economic activity
2
Q

Econometrics is…

A

the quantitative measurement and analysis of actual economic and business phenomenon

3
Q

Regression Analysis is…

A

statistical technique that attempts to “explain” movements in one variable, the dependent variable, as a function of movements in a set of other variables, called the independent (or explanatory) variables, though the quantification of a single equation.

4
Q

What are three Alternative Econometric Approaches

A
1. ) Specifying the models or relationships to be studied
2. ) Collecting the data to quantify the models
3. ) Quantifying the models w/ data
5
Q

Stochastic Error Term

A

is a term that is added to a regression equation to introduce all the variation in Y that cannot be explained by the included x

6
Q

Stochastic Error Term is a symbol of …

A

the econometrician’s ignorance or inability to model all the movements of the dependent variable

7
Q

Stochastic error term must be present in a regression equation because…

A

there are at least four other sources of variation in Y variation in the included X’s

8
Q

Key Assumptions about the error term:

A
1. ) The variation of e does not change when x changes
2. ) The problem distribution of e is normal
3. ) Estimated sum of e is 0
4. ) The value of e is independent of e for any two observations I and j
9
Q

Test whether the slope coefficient is significantly different from zero

A

Step 1: estimate variance, to do this we need to know how widely the error is distributed.
Step 2: We use the available data to estimate
a.) Compute a confidence interval around slope coefficients where Null = B1 = 0
b.) compute the T - statistic for the difference btw B1 and 0

10
Q

OLS

A
• Ordinary Least Squares, also known as minimizing squared errors
11
Q

P value and T statistics are unitless so

A

always factor in the difference btw substantive vs. statistic difference

12
Q

TSS =

A

13
Q

Why should we include more than one variable in our regression?

A
1. ) To improve the precision of our predictions of Y

2. ) To avoid biased estimate of the co-efficients (“omitted variable bias”)

14
Q

Multicolinearity

A

is when your Rk2 is big and results in large standard errors (multivariate)

15
Q

The standard error reported in STATA is…

A