Exam (elaborations)
Introductory Econometrics Wooldridge Questions with correct answers.
- Course
- Institution
Introductory Econometrics Wooldridge Questions with correct answers.
[Show more]
Content preview
Introductory Econometrics Wooldridge Questionswith correct answers
An important feature of a modern approach is that the explanatory
variables—along with the
dependent variable—are treated as Correct Answer-outcomes of random
variables
Econometrics is based upon Correct Answer-the development of
statistical methods for estimating economic relationships, testing
economic theories, and evaluating and implementing government and
business policy.
A common application of econometrics is the forecasting of such
important macroeconomic variables as interest rates, inflation rates, and
gross domestic product (GDP)
Nonexperimental data Correct Answer-are not accumulated through
controlled experiments on individuals, firms, or segments of the
economy. (Nonexperimental data are sometimes called observational
data, or retrospective data, to emphasize the fact that the researcher is a
passive collector of the data.)
Experimental data are Correct Answer-often collected in laboratory
environments in the natural sciences, but they are more difficult to
obtain in the social sciences. Although some social experiments can be
devised, it is often impossible, prohibitively expensive, or morally
repugnant to conduct the kinds of controlled experiments that would be
needed to address economic issues
,An empirical analysis uses Correct Answer-data to test a theory or to
estimate a relationship.
How does one go about structuring an empirical economic analysis?
Correct Answer-It may seem obvious, but
it is worth emphasizing that the first step in any empirical analysis is the
careful formulation of the question of interest. The question might deal
with testing a certain aspect of an economic theory, or it might pertain to
testing the effects of a government policy. In principle, econometric
methods can be used to answer a wide range of questions.
In some cases, especially those that involve the testing of economic
theories, a Correct Answer-formal economic
model is constructed
An economic model consists of Correct Answer-mathematical equations
that describe various relationships
Job Training and Worker Productivity Correct Answer-In this case, there
is little need for formal economic theory. Basic economic understanding
is sufficient for realizing that factors such as education, experience, and
training affect worker productivity. Also, economists are well aware that
workers are paid commensurate with their productivity. This simple
reasoning leads to a model such as
,Again, other factors generally affect the wage rate, but equation (1.2)
captures the essence of the problem.
After we specify an economic model, we need to turn it into Correct
Answer-what we call an econometric model
how an econometric model relates to an economic model. Correct
Answer-Take equation (1.1) as an example. The form of the function f(.)
must be specified before we can undertake an econometric analysis. A
second issue concerning (1.1) is how to deal with variables that cannot
reasonably be observed. For example, consider the wage that a person
can earn in criminal activity. In principle, such a quantity is well
defined, but it would be difficult if not impossible to observe this wage
for a given individual. Even variables such as the probability of being
arrested cannot realistically be obtained for a given individual, but at
least we can observe relevant arrest statistics and derive a variable that
approximates the probability of arrest. Many other factors affect
criminal behavior that we cannot even list, let alone observe, but we
must somehow account for them
The ambiguities inherent in the economic model of crime are resolved
by specifying a particular econometric model: Correct Answer-The
choice of these variables is determined by the economic theory as well
as data considerations. The term u contains unobserved factors, such as
the wage for criminal activity, moral character, family background, and
errors in measuring things like criminal activity and the probability of
arrest
, We could add family background variables to the model, such as number
of siblings, parents' education, and so on, but we can never eliminate u
entirely.
In fact, dealing with this error term or disturbance term is perhaps
Correct Answer-the most important component of any econometric
analysis
The constants b0, b1, . . . , b6 are Correct Answer-the parameters of the
econometric model,and they describe the directions and strengths of the
relationship between crime and the factors used to determine crime in
the model.
A complete econometric model for Example 1.2 might be Correct
Answer-where the term u contains factors such as "innate ability,"
quality of education, family background, and the myriad other factors
that can influence a person's wage. If we are specifically concerned
about the effects of job training, then b3 is the parameter of interest.
For the most part, econometric analysis begins by Correct Answer-
specifying an econometric model, without consideration of the details of
the model's creation
In the economic model of crime example, we would start with an
econometric model such as (1.3) and use Correct Answer-economic
reasoning and common sense as guides for choosing the variables.
Although this approach loses some of the richness of economic analysis,
it is commonly and effectively applied by careful researchers.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller cracker. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
62491 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now