General methodology of modern economic research Step 3:Empirical validation/inference of economic models Step 3:Empirical validation/inference of economic models One needs to estimate unknown model parameters and make inferences based on observed data. Check whether the econometric model is adequate.An adequate model should be at least consistent with the empirical stylized facts. Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 11
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 11 Step 3: Empirical validation/inference of economic models General methodology of modern economic research Step 3: Empirical validation/inference of economic models • One needs to estimate unknown model parameters and make inferences based on observed data. • Check whether the econometric model is adequate. An adequate model should be at least consistent with the empirical stylized facts
General methodology of modern economic research Step 4:Applications Step 4:Applications economic Empirical Data → theories validation Applications collections /models /inference After an econometric model passes the empirical evaluation,it can then be used to: Explain important empirical stylized facts Test economic theory and/or hypotheses Forecast future evolution of the economy Policy evaluation and other applications Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 12
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 12 Step 4: Applications After an econometric model passes the empirical evaluation, it can then be used to: General methodology of modern economic research Step 4: Applications Explain important empirical stylized facts Test economic theory and/or hypotheses Forecast future evolution of the economy Policy evaluation and other applications Data collections economic theories /models Empirical validation /inference Applications
CONTENTS 1.1 General methodology of modern economic research 1.2 Roles of Econometrics 1.3 lllustrative Examples 1.4 Roles of Probability and Statistics Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 13
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 13 1.1 General methodology of modern economic research 1.2 Roles of Econometrics 1.3 Illustrative Examples 1.4 Roles of Probability and Statistics CONTENTS
Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics Modern econometrics is essentially built upon the following fundamental axioms: Any economy can be viewed as a stochastic process governed by some probability law. Economic phenomenon,often summarized in form of data,can be reviewed as a realization of this stochastic data generating process(DGP). Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 14
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 14 Fundamental Axioms of Econometrics Modern econometrics is essentially built upon the following fundamental axioms: Roles of Econometrics Fundamental Axioms of Econometrics Any economy can be viewed as a stochastic process governed by some probability law. Economic phenomenon, often summarized in form of data, can be reviewed as a realization of this stochastic data generating process (DGP)
Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics Remarks: Modern economy is full of uncertainty,e.g.,market (demand,supply and price)uncertainty,policy uncertainty The probability law of this stochastic economic system characterizes the evolution of the economy,and can be viewed as "law of economic motions. Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 15
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 15 Remarks: ● Modern economy is full of uncertainty, e.g., market (demand, supply and price) uncertainty, policy uncertainty ● The probability law of this stochastic economic system characterizes the evolution of the economy, and can be viewed as “law of economic motions.” Fundamental Axioms of Econometrics Roles of Econometrics Fundamental Axioms of Econometrics