Econometria

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The Nature of Econometrics and Economic Data

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hapter 1 discusses the scope of econometrics and raises general issues that result from the application of econometric methods. Section 1.3 examines the kinds of data sets that are used in business, economics, and other social sciences. Section 1.4 provides an intuitive discussion of the difficultiesassociated with the inference of causality in the social sciences.

1.1 WHAT IS ECONOMETRICS?
Imagine that you are hired by your state government to evaluate the effectiveness of a publicly funded job training program. Suppose this program teaches workers various ways to use computers in the manufacturing process. The twenty-week program offers courses during nonworking hours. Any hourlymanufacturing worker may participate, and enrollment in all or part of the program is voluntary. You are to determine what, if any, effect the training program has on each worker’s subsequent hourly wage. Now suppose you work for an investment bank. You are to study the returns on different investment strategies involving short-term U.S. treasury bills to decide whether they comply with implied economictheories. The task of answering such questions may seem daunting at first. At this point, you may only have a vague idea of the kind of data you would need to collect. By the end of this introductory econometrics course, you should know how to use econometric methods to formally evaluate a job training program or to test a simple economic theory. Econometrics is based upon the development ofstatistical methods for estimating economic relationships, testing economic theories, and evaluating and implementing government and business policy. The most common application of econometrics is the forecasting of such important macroeconomic variables as interest rates, inflation rates, and gross domestic product. While forecasts of economic indicators are highly visible and are often widelypublished, econometric methods can be used in economic areas that have nothing to do with macroeconomic forecasting. For example, we will study the effects of political campaign expenditures on voting outcomes. We will consider the effect of school spending on student performance in the field of education. In addition, we will learn how to use econometric methods for forecasting economic time series.
1Chapter 1

The Nature of Econometrics and Economic Data

Econometrics has evolved as a separate discipline from mathematical statistics because the former focuses on the problems inherent in collecting and analyzing nonexperimental economic data. Nonexperimental data are not accumulated through controlled experiments on individuals, firms, or segments of the economy. (Nonexperimental dataare sometimes called observational data to emphasize the fact that the researcher is a passive collector of the data.) Experimental data are often collected in laboratory environments in the natural sciences, but they are much more difficult to obtain in the social sciences. While some social experiments can be devised, it is often impossible, prohibitively expensive, or morally repugnant toconduct the kinds of controlled experiments that would be needed to address economic issues. We give some specific examples of the differences between experimental and nonexperimental data in Section 1.4. Naturally, econometricians have borrowed from mathematical statisticians whenever possible. The method of multiple regression analysis is the mainstay in both fields, but its focus and interpretationcan differ markedly. In addition, economists have devised new techniques to deal with the complexities of economic data and to test the predictions of economic theories.

1.2 STEPS IN EMPIRICAL ECONOMIC ANALYSIS
Econometric methods are relevant in virtually every branch of applied economics. They come into play either when we have an economic theory to test or when we have a relationship in...