Econometrics Methodology Quiz and Flashcards

What is identified as the most important and the most difficult stage of any econometric research?

Which of the following is NOT mentioned as a common reason for incorrect specification of econometric models?

What is a common error in model specification according to the text?

Which activity is NOT part of the 'Estimation of the model' stage as described in the text?

What is a key consideration in the 'Estimation of the model' stage regarding explanatory variables?

Which stage requires knowledge of various econometric methods, their assumptions, and economic implications for parameter estimates?

What is the first stage in econometric research according to the text?

What is one of the tasks involved in specifying an econometric model?

Which step in econometric research involves expressing relationships between economic variables?

What does the specification of an econometric model depend on?

Which aspect of an econometric model includes a priori theoretical expectations about parameters?

In econometric research, what follows after evaluating the estimates?

Specification of Econometric Models

The most important and difficult stage of econometric research, where errors are likely to occur
Common reasons for incorrect specification: • Imperfections and looseness of statements in economic theories • Limitations of knowledge of operative factors in a particular case • Data requirements obstacles in estimating large models

Common Specification Errors

Omissions of important variables from the function
Omissions of equations (e.g., in simultaneous equations models)
Mistaken mathematical form of the functions

Estimation of the Model

A technical stage requiring knowledge of econometric methods, assumptions, and economic implications
Activities involved: • Gathering data on variables included in the model • Examining identification conditions of the function (especially for simultaneous equations models) • Examining aggregation problems involved in the variables • Examining correlation between explanatory variables (multicollinearity) • Choosing appropriate econometric techniques for estimation (e.g., OLS, MLM, Logit, Probit)

Methodology of Econometrics

Concerned with measuring parameters of economic relationships and predicting economic variables
Proceeds along the following stages: • Specification of the model • Estimation of the model • Evaluation of the estimates • Evaluation of the forecasting power of the estimated model

Specifying the Model

Expressing relationships between economic variables in mathematical form
Involves determining: • Dependent and independent variables • A priori theoretical expectations about parameter size and sign • Mathematical form of the model (number of equations, specific form, etc.)
Specification is based on economic theory and available information related to the phenomenon being studied.

Explore the methodology of econometrics which involves measuring parameters of economic relationships and predicting values of economic variables. Learn how econometric research utilizes theoretical relationships among economic variables.