Category: Econometrics

One estimation procedure preformed by many novice economists is to use OLS to regress quantity on price. Let us assume the following framework (omitting the i subscripts on the variables): qd = α0 + α1p + u qs = β0 + β1p + v qd = qs If we regress qd on a constant and…

If you think creating a survey which will compel respondents to answer in an unbiased manner is easy, check out this article originally published in the Wall Street Journal in February (“Census 2010 plays six not-so-easy questions“). The six questions proposed to be asked in 2010 Census short-form questionnaire are as follows: Name of person…

Today we will look at some common distributions used for Bayesian inference. Beta The first distribution we will look at is the Beta distribution. The beta distribution is equal to: [B(a,b)]-1πa-1(1-π)b-1. We can show that: If the prior ~ πa(1-π)b And likelihood ~ πS(1-π)F Then the posterior ~ πa+S(1-π)b+F Where ‘~’ denotes equal except for…

Now we will give an example of Bayesian inference in a more complicating setting. This example is based on a problem from pp. 588-591 of Introductory Statistics for Business and Economics by Wonnacott and Wonnacott. Let us assume that there is a consumer electronics company named Banana, inc.. Banana sells iPood mp3 players. Banana, inc.,…

Bayesian Inference is an important econometric tool. Over the next few days, we will review some of the basic Bayesian inference methods. Economicitis occurs in 300 out of every 100,000 adults. Recently, however, a test has been developed to screen for the disease. Of 1000 individuals with economicitis who were tested, only 40 had an…

Today I will review a few basic concepts of time series econometrics. A time series is a stochastic process where observations appear in different time periods. For instance, {zi} (i=1,2,3,…) is a stochastic process with zi representing the GDP each quarter. Below are a few important definitions which are important to econometric estimation using time…

One of the basic concepts in statistics is the use mathematically rigorous tests to determine whether or not a researcher can reject their null hypothesis. The null hypothesis is the state of the world the researcher assumes exists. The alternative hypothesis is—as the name suggests—an alternative to the null hypothesis. Through these statistical tests, researchers…

Ordinary Least Squares  If you have studied basic statistics, its likely that you have come across the ordinary least squares (OLS) estimation technique.  OLS attempts to minimize the squared distance between dependent variables (‘y‘) and the a linear prediction of y (y_hat=xβ).  The parameter vector ‘β_ols‘ minimizes this distance.  The most important assumption in order for β to reflect to true…

What is one to do when the dependent variable under investigation is categorical?  Well if these categories are ordered, then an ordered probit (or logit) estimation technique is a sensible means for estimation.  An example where ordered probit estimation should be used is for an integer index ranking of physician quality between one and five.    On…

Many data sets that social scientists come across use disproportionate stratified sampling. If a subpopulation is small, the survey designers may want to oversample this group. For example, in the Survey of Income and Program Participation (SIPP) poor individuals are oversampled and in the Community Tracking Study (CTS) uninsured individuals are oversampled in order to…