Econometrics, Lecture 1, 2014-02-18

• Dr Bartłomiej Bartoszewicz
• Email:

[e-mail]

• Office hours: if necessary - after each lecture,

Tuesday, 9:30-10:00

• Final examination: Friday, 13-06-2014, 17:00,

room to be announced

• Final examination: 5-6 short problems to solve, 60

min., total 30 points, at least 16 points to pass

• Bring your calculators with you!

Textbooks:

• [M] Maddala G.S.: Introduction to Econometrics, John Wiley

& Sons 2001.

Also available in Polish

• [B] Brooks Ch.: Introductory Econometrics for Finance,

Cambridge University Press 2002.

• [Gr] Greene W.H.: Econometric Analysis, Prentice Hall 1999.
• [JD] Johnston J., Dinardo J.: Econometrics Methods, McGraw-

Hill/Irwin 1996.

• [D] Dougherty Ch.: Introduction to Econometrics, Oxford

University Press 2002.

Econometrics, Lecture 1, 2014-02-18

Plan:

• What is econometrics?
• How to explore the relations among variables?
• Simple Regression Model
• Final remarks

Econometrics, Lecture 1, 2014-02-18

• What is Econometrics?

Econometrics, Lecture 1, 2014-02-18

Keywords:

• statistical methods: point estimation, interval estimation,

hypothesis testing

• give empirical content to economic relations

Econometrics, Lecture 1, 2014-02-18

Analysis of economic data:

• statistical description of the data

• What is the simplest way of exploring the relation between

two series of data?

Econometrics, Lecture 1, 2014-02-18

Econometrics, Lecture 1, 2014-02-18

Scatter plot

What kind of

relation is
it?

Econometrics, Lecture 1, 2014-02-18

Correlation coefficient

Source: http://en.wikipedia.org/wiki/Pearson_product-

moment_correlation_coefficient

Econometrics, Lecture 1, 2014-02-18

Correlation coefficient

Source: http://en.wikipedia.org/wiki/Pearson_product-

moment_correlation_coefficient

Econometrics, Lecture 1, 2014-02-18

A linear relation between Y and X

•What is the cause and what
is the effect?

•How to fit a line to the
given set of points?

•What is „best”?

Econometrics, Lecture 1, 2014-02-18

A linear relation between Y and X

Econometrics, Lecture 1, 2014-02-18

A linear relation between Y and X

Simple regression

model:

• three ways of notation
• difference between β and b
• what is „ε”?
• results of including „ε” in

the model













0

1

X

Y

Econometrics, Lecture 1, 2014-02-18

Simple regression

model:

• to present the results of

estimation properly we
need to provide the
estimated parameters
with the errors of
estimation

 



  





0

1

0

1

ˆ

b

S

b

S

b

X

b

Y





Econometrics, Lecture 1, 2014-02-18

Simple regression

model:

• Ordinary Least Squares

(OLS) estimation

• assumptions of OLS

estimator

 



  





0

1

0

1

ˆ

b

S

b

S

b

X

b

Y





Econometrics, Lecture 1, 2014-02-18

Final remarks:

• Econometrics is about modeling relationships among

economic variables.

• There is always some degree of randomness and noise in

economic relationships.

• The noise results in estimation error.

Econometrics, Lecture 1, 2014-02-18