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### Ten Practical Applications of Econometrics

Economists apply econometric tools in a variety of specific fields (such as labor economics, development economics, health economics, and finance) to shed light on theoretical questions. They also use [more…]

### Specifying Your Econometrics Regression Model

In econometrics, the regression model is a common starting point of an analysis. As you define your regression model, you need to consider several elements: [more…]

### Econometrics: Choosing the Functional Form of Your Regression Model

In econometrics, the standard estimation procedure for the classical linear regression model, ordinary least squares (OLS), can accommodate complex relationships. Therefore, you have a considerable amount [more…]

### Working with Special Dependent Variables in Econometrics

Many economic phenomena are dichotomous in nature; in other words, the outcome either occurs or does not occur. Dichotomous outcomes are the most common type of discrete or qualitative dependent variables [more…]

### How to Choose a Forecasting Method in Econometrics

In econometrics, the procedure used for forecasting can be quite varied. If historical data is available, forecasting typically involves the use of one or more quantitative techniques. If historical data [more…]

### Typical Problems Estimating Econometric Models

If the classical linear regression model (CLRM) doesn't work for your data because one of its assumptions doesn't hold, then you have to address the problem before you can finalize your analysis. Fortunately [more…]

### Econometric Estimation and the CLRM Assumptions

Econometric techniques are used to estimate economic models, which ultimately allow you to explain how various factors affect some outcome of interest or to forecast future events. The ordinary least squares [more…]

### Useful Formulas in Econometrics

After you acquire data and choose the best econometric model for the question you want to answer, use formulas to produce the estimated output. In some cases, you have to perform these calculations by [more…]

### Econometric Analysis: Looking at Flexibility in Models

You may want to allow your econometric model to have some flexibility, because economic relationships are rarely linear. Many situations are subject to the [more…]

### Econometrics For Dummies Cheat Sheet

You can use the statistical tools of econometrics along with economic theory to test hypotheses of economic theories, explain economic phenomena, and derive precise quantitative estimates of the relationship [more…]

### 10 Common Mistakes in Applied Econometrics

Avoiding mistakes when you do econometric analysis depends on your ability to apply knowledge you acquired before and during your econometrics class. Following is a rundown of common pitfalls to help you [more…]

### Applying Statistical Methods to Economic Problems

Econometrics students always appreciate a review of the statistical concepts that are most important to succeeding with econometrics. Specifically, you need to be comfortable with probability distributions [more…]

### How to View Econometrics Data in STATA

Before you begin doing econometric analysis, make sure you’re familiar with your data and how to view it in the popular STATA software. After all, you don’t want to estimate an econometric model with data [more…]

### How to Calculate Parameters and Estimators

In econometrics, when you collect a random sample of data and calculate a statistic with that data, you’re producing a *point estimate,* which is a single estimate of a population parameter. [more…]

### How to Determine Whether an Estimator Is Good

Statisticians and econometricians typically require the estimators they use for inference and prediction to have certain desirable properties. For statisticians, unbiasedness and efficiency are the two [more…]

### Recognizing Usual Variables: Normal Distribution

In econometrics, a random variable with a normal distribution has a probability density function that is *co**n**ti**n**uous, symmetrical,* and *bell-shaped*. Although many random variables can have a bell-shaped [more…]

### Putting Variables on the Same Scale: Standard Normal Distribution (Z)

In econometrics, a specific version of a normally distributed random variable is the standard normal. A *standard normal distribution* is a normal distribution with a mean of 0 and a variance of 1. It’s [more…]

### The Chi-Squared Distribution in Econometrics

In econometrics, you use the chi-squared distribution extensively. The chi-squared distribution is useful for comparing estimated variance values from a sample to those values based on theoretical assumptions [more…]

### How to Set Up the Population Regression Function (PRF) Model

Before you begin with regression analysis, you need to identify the *population regre**s**sion function* (PRF). The PRF defines reality (or your perception of it) as it relates to your topic of interest. To [more…]

### Defining and Justifying the Least Squares Principle

When you need to estimate a sample regression function (SRF), the most common econometric method is the ordinary least squares (OLS) technique, which uses the least squares principle to fit a prespecified [more…]

### Estimating the Regression Function and the Residuals

The regression function is usually expressed mathematically in one of the following ways: basic notation, summation notation, or matrix notation. The *Y* [more…]

### Quadratic Functions Offer Flexibility in Econometrics

Because economic relationships are rarely linear, you may want to allow your econometric model to have some flexibility. With a quadratic function, you allow the effect of the independent variable [more…]

### Cubic Functions in Econometrics Are Good for Inflexion

With a cubic function, you allow the effect of the independent variable (*X*) on the dependent variable (*Y*) to change. As the value of *X* increases (or decreases), the impact of the dependent variable may [more…]

### In Econometrics, the Inverse Function Limits the Dependent Variable's Value

If you believe that the outcome (dependent variable) you’re modeling is likely to approach some value asymptotically (as *X* approaches zero or infinity), then an inverse function may be the way to go. [more…]

### The Linear-Log Model in Econometrics

If you use natural log values for your independent variables (*X*) and keep your dependent variable (*Y*) in its original scale, the econometric specification is called a [more…]