1. ECON742: Empirical microeconomics Lecture 1 January 2014

2. correlation≠causality In economics, we want to measure the causal impact of X on Y. But crucial distinction between correlation and causality Correlation: relationship between X and Y Correlation: relationship between X and Y Causality: X causes Y Causality: X causes Y Maybe X->Y or Y->X Maybe X->Y or Y->X Maybe Z->X, Z->Y and so X Y Maybe Z->X, Z->Y and so X Y

3. Z->X, Z->Y donc X Y Ice cream sales and shark attacks Ice cream sales and shark attacks Number of decayed teeth and size of vocabulary Number of decayed teeth and size of vocabulary Recent article in the British Medical Journal: Brush your teeth 2 times per day, less cardiovascular diseases Recent article in the British Medical Journal: Brush your teeth 2 times per day, less cardiovascular diseases

4. X->Y ou Y->X? Number of doctors and patients Number of doctors and patients

5. Causal impact of X on Y: OLS? Lecture 1: OLS Lecture 1: OLS Lecture 2: Limitations Lecture 2: Limitations Lecture 3: Panel Data Lecture 3: Panel Data

6. Lecture 4: Program evaluation Causal impact of X on Y Causal impact of X on Y Ideal? Ideal? Typical problem of evaluation: the counterfactual Typical problem of evaluation: the counterfactual Bad control group because of: Bad control group because of: – Self-selection – Non random program placement

7. Empirical techniques Lecture 5: Randomized experiments Lecture 5: Randomized experiments Lecture 6: Instrumental variables Lecture 6: Instrumental variables Lecture 7: Difference-in-differences Lecture 7: Difference-in-differences Lecture 8: Regression discontinuity design Lecture 8: Regression discontinuity design Lecture 9: Selection models Lecture 9: Selection models Lecture 10: Matching Lecture 10: Matching Lecture 12: … Lecture 12: …

8. Conclusion Correlation does not imply causality Correlation does not imply causality The economists have tools (randomized experiments, instrumental variables, DID, discontinuity…) to get the causal impact of programs, reforms, policies on the behaviour of human beings The economists have tools (randomized experiments, instrumental variables, DID, discontinuity…) to get the causal impact of programs, reforms, policies on the behaviour of human beings

9. Evaluation Final exam: 40% (Date TBA) Final exam: 40% (Date TBA) Mid-term exam: 20% (03/11) Mid-term exam: 20% (03/11) Exercises (four): 30% Exercises (four): 30% Presentation: 10% (6 papers) Presentation: 10% (6 papers)

10. Objectives of the course correlation≠causality Master the main microeconometric techniques Master the main microeconometric techniques Be able to understand a research paper (presentation) Be able to understand a research paper (presentation) Be able to maipulate data (exercises) Be able to maipulate data (exercises)

11. Correlation/causality http://xkcd.com/552/ http://xkcd.com/552/