General methodology of modern economic research Step 1:Data collections and summary of empirical stylized facts Step 1:Data collections and summary of empirical stylized facts Example 3:volatility clustering in finance: A high volatility today tends to be followed by another high volatility tomorrow,a low volatility today tends to be followed by another low volatility tomorrow,and both alternate over time. 4产中 500 10001500 2000 2500 time Probability and Statistics for Economists Introduction to Statistics and Econometrics May23,2019 6
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 23, 2019 6 Step 1: Data collections and summary of empirical stylized facts Example 3: volatility clustering in finance: A high volatility today tends to be followed by another high volatility tomorrow, a low volatility today tends to be followed by another low volatility tomorrow, and both alternate over time. General methodology of modern economic research Step 1: Data collections and summary of empirical stylized facts
General methodology of modern economic research Step 1:Data collections and summary of empirical stylized facts Step 1:Data collections and summary of empirical stylized facts a starting point the empirical serve as for economic stylized facts research Probability and Statistics for Economists Introduction to Statistics and Econometrics May23,2019 7
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 23, 2019 7 Step 1: Data collections and summary of empirical stylized facts General methodology of modern economic research Step 1: Data collections and summary of empirical stylized facts the empirical stylized facts a starting point for economic research serve as
General methodology of modern economic research Step 2:Development of economic theories/models Step 2:Development of economic theories/models economic Empirical Data theories validation Applications collections /models inference With the empirical stylized facts in mind, economists then develop an economic theory or model. This usually calls for specifying a mathematical model of economic theory. Probability and Statistics for Economists Introduction to Statistics and Econometrics May23,2019 8
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 23, 2019 8 Step 2: Development of economic theories/models ● With the empirical stylized facts in mind, economists then develop an economic theory or model. ● This usually calls for specifying a mathematical model of economic theory. General methodology of modern economic research Step 2: Development of economic theories/models Data collections economic theories /models Empirical validation /inference Applications
General methodology of modern economic research Step 2:Development of economic theories/models Step 2:Development of economic theories/models An example is the Euler equation for rational expectations in macroeconomics. The objective of economic modeling is not merely to explain the stylized facts,but also to understand the economic mechanism. Probability and Statistics for Economists Introduction to Statistics and Econometrics May23,2019 9
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 23, 2019 9 Step 2: Development of economic theories/models • An example is the Euler equation for rational expectations in macroeconomics. • The objective of economic modeling is not merely to explain the stylized facts, but also to understand the economic mechanism. General methodology of modern economic research Step 2: Development of economic theories/models
General methodology of modern economic research Step 3:Empirical validation/inference of economic models Step 3:Empirical validation/inference of economic models economic Empirical Data theories validation Applications collections models /inference A key is to transform an economic model into a testable empirical econometric model. One often has to assume some functional form, up to some unknown model parameters,or to choose suitable instrumental variables to form a set of moment conditions. Probability and Statistics for Economists Introduction to Statistics and Econometrics May23,2019 10
Probability and Statistics for Economists Introduction to Statistics and Econometrics May 23, 2019 10 Step 3: Empirical validation/inference of economic models General methodology of modern economic research Step 3: Empirical validation/inference of economic models • A key is to transform an economic model into a testable empirical econometric model. • One often has to assume some functional form, up to some unknown model parameters, or to choose suitable instrumental variables to form a set of moment conditions. Data collections economic theories /models Empirical validation /inference Applications