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Jul 30, 2008

When you have different series with different measurements

Hi,

One of the common mistakes a new comer in econometrics doe's is using different series (variable series) having different measurements for analysis like regression etc.

This is wrong approach, since you cannot compare for instance, GDP as function of CPI, interest rates, etc. If one observe GDP will available at current and constant price in billion/million dollars where as CPI is index and interest rate is in below two digits one.

Some people say there is no wrong in estimation GDP as function of CPI and interest rates, yes, but how do you calculate you elasticities, don't you think comparing milions with index is cumbersome.

Hence, convert everthing into log terms, then you can interpret your elasticity directly.

See next post for more how to convert into log terms and advantage and disadvantages.

Regards,

Jul 13, 2008

How this blog helps you?

This blog posts daily/weekly easy ways of learning and doing practical econometrics. Some posts will be related to the theory and some how to do it using a statistical package or excel.

Coming to statistical package it refer to R language free software (for more see www.r-project.org) and get a free copy of yours today. And coming excel everybody knows about it and have it.

Watch for future new posts daily/weekly.

Why Econometrics?

Hi,

People who are new to this field/subject might be of doubt what it is and why we need it.

Let me put things simply. Econometrics is Mathematical/Statistical application to the empirical estimation of many economic scenarios/economic theories existed. A simple and very common one is what happen if price of crude oil burst to $200. Its effect is only on gasoline consumption or on total economy. Is this thought raising?

An Economist with the help of Econometrics gives a solution given economic conditions of the State.

Now, coming Why Econometrics?

General Economics usually carries a blame being not scientific and consider it as one of social sciences. Econometrics being a major branch (in recent past) or lets say better economics, is scientific (since empirical) and practical.

Hence, Econometrics now-a-days is a considered as a scientific approach for many to get statistical evidence for descriptions of the economic scenarios. And widely Statesman look at these Econometricians for their prescriptions for any economic policy problem.