EconometricsEconometrics

Nachrowi Djalal Nachrowi

Course CoverageCourse Coverage

Introducing a framework of quantitative analysis based on econometric methodology to analyze causality relationships among variables that are related and to analyze movements of time series data.

Application to labor economics and population data analysis.

Introduction to Introduction to Concept and Econometric Concept and Econometric

Methodology Methodology

Nachrowi Djalal NachrowiNachrowi Djalal Nachrowi

EconometricsEconometrics

What kind of a creature?  

Literal MeaningLiteral Meaning

Economics measurements

General MeaningGeneral Meaning

A science that studies phenomena of economics, in general, quantitatively

Multidisciplinary approached is Multidisciplinary approached is neededneededEconomics TheoryMathematical EconomyStatistical EconomyMathematical StatisticsComputer Software

??? Difficult ???

Why do we need EconometricsWhy do we need Econometrics

Sometime, Economics Theory is not informative

consumption vs income

Often, Economic Theory is not conclusive

Economic growth of a country vs World Price Oil

Two analytical approachesTwo analytical approaches

Causality/Factor Analysis versus Trend Analysis

ECONOMETRICS ECONOMETRICS METHODOLOGYMETHODOLOGY1. Developing a hypothesis2. Offer a model to test the hypothesis3. Estimate parameter model4. Model verification5. Make some prediction6. Use the model for policy analysis

CasesCases

Relationship between: consumption and income Child achievement at school and family income World demand of oil and its price

Factors that influence cocoa production in Indonesia

Export volume movement model

etc.

Small case:Small case:

What is the impact of income What is the impact of income increase to consumption increase to consumption

If income is increased by 15% how If income is increased by 15% how many % will consumption increasemany % will consumption increase

Consumption vs. incomeConsumption vs. income

Hypothesis

“On average, if an income increases, then the consumption will increase also. But, the increment of consumption is less than the increment of income”

Model OfferedModel Offered

Consumption = a + b Income

Model EstimationModel Estimation

Get dataUse any technique of estimation

VerificationVerification

(1 ) b < 1(2 ) b > 0

PredictionPrediction

Consumption = 100.000 +0.65 Income

If salary increases by 25% what is the percentage increase of consumption?

Policy ImplicationPolicy Implication

If PNS salaries increased by 10%, what is the impact to inflation (impact of consumption increase)?

How to keep the inflation low?

More TerminologiesMore TerminologiesRegression Analysis: the study of the

dependence of one variable on one or more other explanatory variables to estimate population average of dependence variable given the fixed explanatory variables.

Deterministic vs. Stochastic RelationshipsRegression vs. Correlation