Basic Econometrics by Damodar Gujarati, Dawn Porter

By Damodar Gujarati, Dawn Porter

This can be a thorough revision of the best-selling undergraduate Econometrics text.Accessible, whole, and student-oriented, simple Econometrics is acceptable for first classes in Econometrics in any respect four-year schools and universities.In addition to a major textual content, scholars have entry to the SHAZY pupil model of SHAZAM, a cheap model of a general econometrics package deal, in addition to info units (free on adoption to teachers) for challenge and instance fabric within the textual content.

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Hypothesis Testing Assuming that the fitted model is a reasonably good approximation of reality, we have to develop suitable criteria to find out whether the estimates obtained in, say, Eq. 3) are in accord with the expectations of the theory that is being tested. 13 As noted earlier, Keynes expected the MPC to be positive but less than 1. 70. But before we accept this finding as confirmation of Keynesian consumption theory, we must enquire whether this estimate is sufficiently below unity to convince us that this is not a chance occurrence or peculiarity of the particular data we have used.

Suppose that, as a result of the proposed policy change, investment expenditure increases. What will be the effect on the economy? 33. That is, an increase (decrease) of a dollar in investment will eventually lead to more than a threefold increase (decrease) in income; note that it takes time for the multiplier to work. The critical value in this computation is MPC, for the multiplier depends on it. 3). Thus, a quantitative estimate of MPC provides valuable information for policy purposes. Knowing MPC, one can predict the future course of income, consumption expenditure, and employment following a change in the government’s fiscal policies.

Such confirmation or refutation of economic theories on the basis of sample evidence is based on a branch of statistical theory known as statistical inference (hypothesis testing). Throughout this book we shall see how this inference process is actually conducted. 7. Forecasting or Prediction If the chosen model does not refute the hypothesis or theory under consideration, we may use it to predict the future value(s) of the dependent, or forecast, variable Y on the basis of known or expected future value(s) of the explanatory, or predictor, variable X.

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