Definition of Econometrics
Econometrics is based upon the development of statistical methods for estimating economic relationships, testing economic theories, and evaluating and implementing government and business policy. The most common application of econometrics is the forecasting of such important macroeconomic variables as interest rates, inflation rates, and gross domestic product. While forecasts of economic indicators are highly visible and are often widely published, econometric methods can be used in economic areas that have nothing to do with macroeconomic forecasting. For example, we will study the effects of political campaign expenditures on voting outcomes. We will consider the effect of school spending on student performance in the field of education. In addition, we will learn how to use econometric methods for forecasting economic time series. Econometrics has evolved as a separate discipline from mathematical statistics because the former focuses on the problems inherent in collecting and analyzing nonexperimental economic data. Read more
Panel or Longitudinal Data
A panel data (or longitudinal data) set consists of a time series for each cross-sectional ember in the data set. As an example, suppose we have wage, education, and employment history for a set of individuals followed over a ten-year period. Or we might collect information, such as investment and financial data, about the same set of firms over a five-year time period. Panel data can also be collected on geographical units. For example, we can collect data for the same set of counties in the United States on immigration flows, tax rates, wage rates, government expenditures, etc., for the years 1980, 1985, and 1990. The key feature of panel data that distinguishes it from a pooled cross section is the fact that the same cross-sectional units (individuals, firms, or counties in the above examples) are followed over a given time period. Most books at the undergraduate level do not contain a discussion of econometric methods for panel data. However, economists now recognize that some questions are difficult, if not impossible, to answer satisfactorily without panel data. As you will see, we can make considerable progress with simple panel data analysis, a method which is not much more difficult than dealing with a standard cross-sectional data set.
