Econometrics

Nachrowi Djalal Nachrowi

Course 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
Concept and Econometric
Methodology
Nachrowi Djalal Nachrowi

Econometrics
What kind of a creature?

Literal Meaning
Economics

measurements

General Meaning
A science

that studies phenomena of

economics, in general, quantitatively

Multidisciplinary approached is
needed
Economics

Theory
Mathematical Economy
Statistical Economy
Mathematical Statistics
Computer Software

??? Difficult ???

Why 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 approaches

Causality/Factor Analysis

versus
Trend Analysis

ECONOMETRICS
METHODOLOGY
1.
2.
3.
4.
5.
6.

Developing a hypothesis
Offer a model to test the hypothesis
Estimate parameter model
Model verification
Make some prediction
Use the model for policy analysis

Cases
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:
What is the impact of income
increase to consumption
If income is increased by 15% how
many % will consumption increase

Consumption 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 Offered
Consumption = a + b Income

Model Estimation
Get data
Use any technique of estimation

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

Prediction
Consumption = 100.000 +0.65 Income
If salary increases by 25% what is the
percentage increase of consumption?

Policy Implication
If

PNS salaries increased by 10%, what is

the impact to inflation (impact of
consumption increase)?
How to keep the inflation low?

More Terminologies
Regression 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 Relationships
Regression vs. Correlation