Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics The goal of econometrics: To infer the probability law of the stochastic economic system based on observed data,and then use the inferred probability law for economic applications. For example,economic theory usually takes a form of imposing certain restrictions on the probability law. Thus,one can test economic theory or economic hypotheses by checking the validity of these restrictions. Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 16
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 16 Fundamental Axioms of Econometrics Roles of Econometrics Fundamental Axioms of Econometrics ● The goal of econometrics: To infer the probability law of the stochastic economic system based on observed data, and then use the inferred probability law for economic applications. For example, economic theory usually takes a form of imposing certain restrictions on the probability law. Thus, one can test economic theory or economic hypotheses by checking the validity of these restrictions
Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics Tools and methods of probability and statistics will provide operating principles for econometrics.For examples, model parameter hypothesis model specification estimation testing validation Econometrics is not a simple application of a general theory of mathematical statistics to economic data. Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 17
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 17 Fundamental Axioms of Econometrics Roles of Econometrics Fundamental Axioms of Econometrics ● Tools and methods of probability and statistics will provide operating principles for econometrics. For examples, ● Econometrics is not a simple application of a general theory of mathematical statistics to economic data. model specification parameter estimation hypothesis testing model validation
Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics "Econometrics is by no means the same as economic statistics.Nor is it identical with what we call general economic theory,although a considerable portion of this theory has a definitely quantitative character.Nor should econometrics be taken as synonymous with the application of mathematics to economics. Experience has shown that each of these three viewpoints,that of statistics,economic theory, and mathematics,is a necessary,but not by itself Ragnar Frisch a sufficient,condition for a real understanding of (1933) the quantitative relations in modern economic life.It is the unification of all three that is powerful.And it is this unification that constitutes econometrics." Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 18
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 18 Fundamental Axioms of Econometrics Roles of Econometrics Fundamental Axioms of Econometrics “Econometrics is by no means the same as economic statistics. Nor is it identical with what we call general economic theory, although a considerable portion of this theory has a definitely quantitative character. Nor should econometrics be taken as synonymous with the application of mathematics to economics. Experience has shown that each of these three viewpoints, that of statistics, economic theory, and mathematics, is a necessary, but not by itself a sufficient, condition for a real understanding of the quantitative relations in modern economic life. It is the unification of all three that is powerful. And it is this unification that constitutes econometrics.” Ragnar Frisch (1933)
Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics Among other things,econometrics can play the following roles in economics: Examine how well an economic theory can explain historical economic data(particularly the important empirical stylized facts); Test validity of economic theories and economic hypotheses; Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 19
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 19 Among other things, econometrics can play the following roles in economics: ▫ Examine how well an economic theory can explain historical economic data (particularly the important empirical stylized facts); ▫ Test validity of economic theories and economic hypotheses; Fundamental Axioms of Econometrics Roles of Econometrics Fundamental Axioms of Econometrics
Roles of Econometrics Fundamental Axioms of Econometrics Fundamental Axioms of Econometrics o Predict the future evolution of the economy Recommend business strategies and evaluate economic policies. CONVERIS Policymakers Tools that they can use Economic Theories New Econometrician Policies Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 20
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 20 ▫ Predict the future evolution of the economy ▫ Recommend business strategies and evaluate economic policies. Fundamental Axioms of Econometrics Roles of Econometrics Fundamental Axioms of Econometrics