1. Dr. C. Ertuna1 Required Textbook “Econometrics: By Example " Gujarati Palgrave-Macmillian 2011

2. 2 Econometrics is set of 1.statistical and 2.mathematical tools to help to a.prove or b.disprove certain financial and economic i.propositions and ii.models. What is Econometrics?

3. 3 We need to learn Econometric Techniques in order to analyze and understand financial and economic behavior in the markets. Why do we learn Econometrics?

4. 2-4 How Does Econometrics Differ From Economic Theory? Economic theory: qualitative results — demand curves slope downward Econometrics: quantitative results — price elasticity of demand for milk = -0.75

5. 2-5 How Does Econometrics Differ From Statistics? Statistics: “summarize the data faithfully”; “let the data speak for themselves.” Econometrics: “ what do we learn from economic theory AND the data at hand?”

6. 2-6 What’s Metrics For? Estimation: What is the marginal propensity to consume? Hypothesis Testing: Do unions raise workers’ wages? Forecasting: What will Personal Savings be in 2001 if GDP is $9.2 trillion?

7. 2-7 Economists Ask: “What Changes What and How?” Higher Income, Higher Saving Higher Price, Lower Quantity Demanded Higher Interest Rate, Lower Investment

8. 2-8 Savings Versus Income Theory Would Assume an Exact Relationship, e.g., Y =  X 0 1000 2000 3000 4000 5000 6000 24000480007200096000

9. 2-9 Slope of the Line Is Key! Slope is the change in savings with respect to changes in income Slope is the derivative of savings with respect to income If we know the slope, we’ve quantified the relationship!

10. 2-10 Never So Neat: Savings Versus Income

11. 2-11 We need to find best way to estimate  (slope) Econometrics helps us to find that “best way”.

12. 12 Using the Model for Prediction and Policy Tests of Hypothesis Specification Testing & Diagnostic Checking & Financial or Economic Theory Estimation Econometric Model Data Adequate? Is the Model Adequate? No o Yes

13. Let`s get some Data Let`s go to the website of Council for Economic Planning and Development. http://www.cepd.gov.tw/encontent/ 13

14. Let`s get some Data 14

15. 15  Panel data o Cross-sectional o Time series Data Structure

16. 16 Raw Data Raw data can help us in graphical form to: Determine the distribution (Histograms) Compare two or more series (processies) (Line graph) Observe revelation of a serie (process) (Scatterplot)

17. 17 Trend Cycle Seasonal Irregular o Episodic o Residual Components of Financial or Economic Time Series

18. 18 Growth Rates Changing Indices and Base Changing Frequency (stock vs. flow var.) Nominal vs. Real (appropriate deflator) Logs (linearizing trend or model, interpretation) Diffrencing (Stationarity) Basic Financial or Economic Data Handling

19. 19 Growth Rates

20. 20 Discretely Compounding Growth Rates

21. 21 Discretely Compounding Growth Rates

22. 22 Continuously Compounding Growth Rates

23. 23 Continuously Compounding Growth Rates

24. 24 Basic Financial or Economic Data Handling

25. 25 Changing Frequency (stock vs. flow var.) Stock data: Data value at a particular time (Stock Price) Beginning of the period Middle of the period End of the period Average of the period Flow data: Data value representing a period of time periodic values can be added (monthly incomes added up to annual income) Basic Financial or Economic Data Handling

26. 26 END

27. 27 Discretely Compounding Growth Rates

28. Let`s get some Data Let`s go to the website of Council for Economic Planning and Development. http://www.cepd.gov.tw/encontent/ Statistics / Taiwan Statistical Data Book / Taiwan Statistical Data Book 2011 / Taiwan Statistical Data Book 2011 (excel) Download 28

29. Let`s get some Data Cont. In the zip file 2011.000 is the Table of Contents Open the zip file and take out 2011.03 Worksheet 3-1 contains annual GDP of Taiwan covering periods from 1985 to 2010. 29

30. 30 Data Entry Graphics Summary Statistics EViews

31. Getting Data in EViews File/Open/ Foreign Data as Workfile.... –Follow steps Change Year’s data type to «Date» Automatically 2 new variables «c» and «residuals» are created. Highlight the original variables (except ‘Year’ Wright click and choose «Open as Group» 31

32. Summary Statistics & Graph View / Descriptive Stats / individual Samples View / Graph / 32