INTRODUCTION ECONOMETRICS I

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INTRODUCTIONECONOMETRICS I
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BASICS I
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BASIC PROBLEM I

• Endogeneity
• Circularity
• Egg and chicken
• Causality and correlation two very different
  concepts!!

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BASIC PROBLEM I

• Interpretation of any graph/table implies many
  assumptions.
• However, these assumptions are almost never
  explicit.
• Assumptions for the interpretation of the
  previous graph?
• Direction
• Omission

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BASICS II

• 1936 US presidential election
• Sampling list mail out ballot cards to
  residential telephone subscribers and owners of
  cars.
• Result of the poll Landon (republican) will win
  with 57 of the vote over Roosevelt (democract).

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BASICS II

• Outcome of the election Roosevelt won with 62.5
  of the votes (523 of the 531 electoral votes!!)
• What happened?

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BASICS PROBLEM II

• Hormone-replacement therapy for women with
  symptoms of menopause. Does it work?
• Possible problem.
• Solution.
• Why did the result with observational data was
  wrong?

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BASICS PROBLEM II

• Sample selection problem.
• Training courses for employees.
• Annual physical medical review.

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SOLUTION if possible

• Randomized experiment. Example.
• In medical science only randomized experiments
  are accepted.
• Tobacco litigation.
• Food and Drug administration.
• Many times experiments are NOT AVAILABLE AND ARE
  VERY EXPENSIVE.
• Look for other designs clever regression and
  proper estimation procedures.

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EXOGENEITY

• Basic problem to find an exogenous source of
  variation.
• Impossible (Lucas Critique) everything in
  economics is set simultaneously-gtDGEM and
  computable models. Deep parameters
• Construct experiments or look for natural and
  pseudo-experiments. Find credible sources of
  exog. variation.

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IMPORTANT!!

• Statistical methods are never wrong!
• It is their application by clumsy, un-
  experienced or careless researchers that makes
  the results wrong.
• Remember if you get the design /assumptions
  /data right the results will always be right.

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The NYT litigation

• Last year Morgan Stanley agreed to pay 54
  millions for a sexual discrimination demand.
  Recently, Walmart.
• In the 70s some women journalist at the NYT
  claimed that they were discriminated.
• Is a simple difference between the salary of men
  and women a good indicator of discrimination?
• Judge decision.

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Regressions