Econometrics is a young science. It developed during the previous century and primarily after World War II.
Econometric Society 1933 Econometrics is the unification of statistics economic theory and mathematics. (Frisch 1933)
4 Historical review
Empirical economic studies have though a longer history for instance
1676 Sir William Petty The political arithmetic studies of peoples ability to pay taxes and of the possibilities to recruit military personnel.
1699 Gregory King Studies of the price variation of corn as a result of weather changes
5 Historical review. The turn of the century 1900
Engels law Income elasticity of food lt 1
(Ernst Engel 1821-1896)
Henry L. Moore studies of business cycles including the first attempt to estimate demand functions using multiple regression. (Economic Cycles Their Laws and Cause MacMillan New York 1914)
E.Ph. Makeprang Price theory first interdependent system of demand and supply (1906)
6 Historical review. Between the wars
Cobb C.W. Douglas P. H. (1928) A theory of production AER Douglas P.H. (1948) Are there laws of production AER
Sevall Wright (1934) on interdependent systems (The Method of Path Coefficients in Annals of Mathematical Statistics)
Henry Schultz on the demand for private consumption (Statistical Laws of Demand and Supply 1928. The Theory and Measurement of Demand 1938 University of Chicago Press)
Cowles Commission started in Colorado Springs in the 1930s and then moved to Chicago (Jacob Marschak Tjallings Koopmans Leonid Hurvicz Lawrence Klein T.W. Andersson developed LIML)
7 Historical review. Between the wars
Ragnar Frisch (Econometric society 1933)
Trygve Haavelmo (1944) The probability approach in econometrics Supplement to Econometrica
Jan Tinbergen Macro models (1937) An Econometric Approach to Business Cycle Problems (1939) Statistical Testing of Business Cycle Theories.
8 Historical review
The scientific development of Econometrics was made possible by
The development of the theory for statistical inference (R.A. Fisher Jerzy Neyman Egon Pearson)
The increased supply of data
The development of fast computers.
9 Historical review. The post war period
Large econometric macro models for business cycle analysis and for the analysis of economic growth (Tinbergen Klein Klein-Goldberger Brookings Centraal Plan Bureau in the Haag.) were not very successful and were later replaced by time-series models and methods.
Methods for ID-systems Herman Wold Henri Theil.
Critique of the macro economic applications T. Sargan David Hendry and the rational expectations hypothesis and Lucas critique.
Time-series econometrics to a large extent driven by applications primarily in macro and in the financial markets (stationarity unit-root co-integration)
10 Historical review. The post war period
Micro econometrics (cross-sections repeated cross-sections panel data discrete choice unobserved heterogeneity self selection) J. Heckman and D. McFadden
Experimental economics (new field for old methods)
11 Basic ideas and approaches in Econometrics.
A central concept The Data Generating Process (DGP).
DGP Econometric model
12 Basic ideas and approaches in Econometrics.
The ceteris paribus assumption
13 The DGP is a random process
Simple random experiment Throw a coin
Sample space Stochastic variable Probability
Head X1 P(X1)1/2
Tail X0 P(X0)1/2
14 A market model Structural form
15 P q 16 Interpretation of e1 and e2
e1 and e2 represent (economic) behavior other than picked up by y and x
e1 and e2 are random variables with zero means
e1 and e2 are assumed uncorrelated with y and x
e1 and e2 can also represent measurement errors in q.
17 A market model The reduced form
Marginal distribution of p and q
Conditional distribution of p and q
18 Common econometric problems
Model formulation and data collection
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