tailieunhanh - Book Econometric Analysis of Cross Section and Panel Data By Wooldridge - Chapter 1

INTRODUCTION AND BACKGROUND In this part we introduce the basic approach to econometrics taken throughout the book and cover some background material that is important to master before reading the remainder of the text. Students who have a solid understanding of the algebra of conditional expectations | I INTRODUCTION AND BACKGROUND In this part we introduce the basic approach to econometrics taken throughout the book and cover some background material that is important to master before reading the remainder of the text. Students who have a solid understanding of the algebra of conditional expectations conditional variances and linear projections could skip Chapter 2 referring to it only as needed. Chapter 3 contains a summary of the asymptotic analysis needed to read Part II and beyond. In Part III we introduce additional asymptotic tools that are needed to study nonlinear estimation. Introduction Causal Relationships and Ceteris Paribus Analysis The goal of most empirical studies in economics and other social sciences is to determine whether a change in one variable say w causes a change in another variable say y. For example does having another year of education cause an increase in monthly salary Does reducing class size cause an improvement in student performance Does lowering the business property tax rate cause an increase in city economic activity Because economic variables are properly interpreted as random variables we should use ideas from probability to formalize the sense in which a change in w causes a change in y. The notion of ceteris paribus that is holding all other relevant factors fixed is at the crux of establishing a causal relationship. Simply finding that two variables are correlated is rarely enough to conclude that a change in one variable causes a change in another. This result is due to the nature of economic data rarely can we run a controlled experiment that allows a simple correlation analysis to uncover causality. Instead we can use econometric methods to effectively hold other factors fixed. If we focus on the average or expected response a ceteris paribus analysis entails estimating E y w c the expected value of y conditional on w and c. The vector c whose dimension is not important for this discussion denotes a set of control

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