01 Intro
What is Econometrics?¶
How do we test economic theories are true using real-world data, using statistics.
Types of Data¶
| Experimental | Real-World | |
|---|---|---|
| Controlled Environments | ✅ | ❌ |
Why Econometrics?¶
| Statistics | Econometrics | |
|---|---|---|
| Analyze | experimental data | Real world data |
Type of Relationships¶
- One-way
- Simultaneous
Problems¶
Noise¶
Randomness due to nature of the real world.
Heteroskedasticity¶
Variance in distribution of possible outcomes will change over different time, location, settings.
This is the biggest problem when using observational data, rather than experimental data.
Auto-Correlation¶
Tendency of a variable to be determined by its own past values.
Mostly happens in time-series.
Overnight/Call Money Market¶
Short-term lending from central bank to commercial banks.
These interest rates are called call money rate. It will be different from the regular loans, and will change regularly.
An interbank call money market is a short-term money market which allows for large financial institutions to borrow and lend money at interbank rates. The loans in the call money market are very short, usually lasting no longer than a week.
Random Variable¶
Numerical outcome of a random event
There are multiple outcomes possible, and there exists an underlying probability distribution. Hence, for each possible outcome, there exists a corresponding probability.
2 random variables cannot perfectly correlated; otherwise it has some cause.
Systematic Event¶
only one outcome is possible
\(P(A)=1; P(A')=0\)
numerical outcome of a systematic event is systematic variable
Africa Case Study¶
People were dying due to malaria and dengue, as they were not having access proper shelter from the mosquitos.
The first idea was to increase their income, by proving them direct income transfer, because they would use that money to take care of themselves.
2 researchers at MIT studied these African Countries. These 2 researchers disagreed.
There were 2 communities
- One community was given direct income transfers
- One community was given nets
Giving nets was more effective, as the other community spent the money for other aspects such as food, baby requirements, purchasing books; they considered nets as a luxury.