1. Applied Econometrics Second edition
Dimitrios Asteriou and Stephen G. Hall

2. What is Econometrics? The Stages of Econometric Work
INTRODUCTION
What is Econometrics?
The Stages of Econometric Work

3. What is Econometrics?
Econometrics means measurement (metrics in greek) in economics.
The importance of applied work in economics is increasing constantly.
Theory suggests that X affects Y but is this true or not?
This is the work of the applied econometrician.

4. What is Econometrics?
Examples of problems that may be tackled by an Econometrician
Modelling long-term relationships among prices and interest rates.
Examining the effect of inflation in unemployment rates
Examining the effect of disposable income on consumption

5. What is Econometrics?
Examples of problems that may be tackled by an Econometrician (continued)
Determining the factors that affect GDP per capita growth
Testing the validity of the CAPM and APT theories
Forecasting the correlation among the returns and the stock indices of two countries.

6. The Stages of Applied Econometric Analysis
Economic Theory
Econometric Model Data
Model Estimation
Specification Testing and Diagnostics
Is the Model Adequate?
No Yes
Test any hypothesis
Use for Predictions and Policy Making

7. The Structure of Economic Data
There are three different types of economic data
TIME SERIES
CROSS SECTIONAL
PANEL DATA

8. The Structure of Economic Data
Time Series Data
Examples: GDP, Unemployment, Inflation, Stock Prices, etc
Vectors or Columns (like in a spreadsheet)
Frequencies: Yearly, Bi-annually, Quarterly, Monthly, Weekly, Daily, Hourly.
Lots of different values for different time periods for one country, state, city, market.

9. The Structure of Economic Data
Cross-Sectional Data
Examples: GDP, Unemployment, Inflation, Stock Prices, etc.
Vectors or Rows (like in a spreadsheet)
Frequencies: Yearly, Bi-annually, Quarterly, Monthly, Weekly, Daily, Hourly.
Lots of different values for different countries, states, cities, markets, but for one time period only.

10. The Structure of Economic Data
Panel Data
A combination of time series and cross-sectional data.
Examples: GDP, Unemployment, Inflation, Stock Prices, etc.
Matrices (columns and rows to make an n times m matrix)
Frequencies: Yearly, Bi-annually, Quarterly, Monthly, Weekly, Daily, Hourly.
Lots of different values for different countries, states, cities, markets, and for different time periods.

11. The Structure of Economic Data - Notation
Time series: Yt, t=1990, 1991, …, 2012
Cross-Sectional: Yi, i=1, 2, 3, …, 40
Panel Data: Yit, i and t defined as above.
It is common to denote each observation by the letter t and the total number of observations by T for time series data, and to denote each observation by the letter i and the total number of observations by N for cross-sectional data.

12. The Structure of Economic Data – Quantitative vs Qualitative
The data may be quantitative and qualitative.
Quantitative (e.g. GDP per capita, exchange rates, stock prices, unemployment rates)
Qualitative (e.g. Day of the week, gender, level of education)