Course Name: Introduction to Econometrics

Course Code: Econ 2061

Prepared by Jemal M.

Course Description:

The aim of the course is to introduce the concepts and theories of econometrics to business or non-
economics major students. The course mainly focuses on regression techniques for the analysis of cross-
sectional and continuous data, as these techniques constitute the basis of econometric analysis. It begins
with an introduction to the basic concepts of statistics and econometrics like random variable, expected
value, variance, correlation, economic and econometric modeling as well as types of data. It then discuses
estimation techniques mainly the classical simple and multiple regression models, and the mechanics of
inference based on these models. The course will also try to highlight estimation problems that may arise
from the violation of assumptions that underlie ordinary least square estimation technique, such as
multicollinearity, heteroscedasticity and autocorrelation. Finally, the course will introduce students to the
essential features and functions of dummy dependent variable models, time seines models and panel data
models. The course builds up on knowledge of intermediate statistics, and basic calculus and matrix
algebra. Therefore, students should have already taken these prerequisite topics before starting this
Introduction to Econometrics course.

Course Objectives:

The main objective of this course is to enable students have basic understanding of econometrics and
inferential analysis. More specifically, after the completion of the course, students are expected to:
 Distinguish between economic and econometric models;
 Be able to identify appropriate regression models for different types of data;
 Do simple and multiple regressions with economic data;
 Interpret regression results (like coefficients and R 2) and test hypotheses; and
 Detect (in)existence of problems of multicollinearity, heteroscedasticity and autocorrelation as
well as suggest how to rectify such problems (both manually and using statistical packages).

Course Contents for Lecture:

1. Introduction (4 hours)
1.1. revision of some important statistics concepts (random variable, normal distribution, expected
value, variance, correlation)
1.2. Definition and Scope of Econometrics
1.3. Models: Economic models and Econometric models
1.4. Methodology of Econometrics
1.5. The Sources, Types and Nature of Data
2. Simple Linear Regression (17 hours)
2.1. Concept of Regression Function
2.2. Method of Least Squares
2.3. Residuals and Goodness-of-fit
2.4. Properties of OLS Estimates and Gauss-Markov Theorem

1
 2.5. Confidence Intervals and Hypothesis Testing
2.6. Predictions using Simple Linear Regression Model
3. Multiple Linear Regression (13 hours)
3.1. Method of Ordinary Least Squares revised
3.2. Partial Correlation Coefficients & their Interpretation
3.3. Coefficient of Multiple Determination
3.4. Properties of Least Squares and Gauss-Markov Theorem
3.5. Hypothesis Testing in Multiple Linear Regression
3.6. Predictions using Multiple Linear Regression
4. Violations of the Assumptions of the Classical Model (14 hours)
4.1. Multicollinearity
4.2. Heteroscedasticity
4.3. Autocorrelation
4.4. Specification Errors: Omission of Variables
4.5. Tests of Parameter Stability
5: Introduction to Dummy Dependent Variable Models
5.1. Linea Probability model
5.2. Binary Probit model
5.3. Binary Logit Model

6: Introduction to Time Series and Panel Data regression Models

6.1. Nature of Time Series Data and regression Models
6.2. Nature of Panel Data and Estimation Models

REFERENCES:
1. Gujarati, D. N. (2004). Basic Econometrics, 4th edition, McGraw-Hill.
2. Maddala, G. S. (1992). Introduction to Econometrics, 2nd edition, Macmillan.
3. Wooldridge, J. (2004). Introductory Econometrics: A Modern Approach , 2nd ed.
4. Enders, W. (2004). Applied Econometric Time Series, John Wiley & Sons: Singapore.
5. Koutsoyiannis, A. (2001). Theory of Econometrics, Palgrave: New York.
6. Johnston, J., Econometric Methods, 3rd edition.
7. Kmenta, J. Elements of Econometrics, 2nd edition.
8. Intrilligator M.D, R.G. Bodkin, and D. Hsiao (1996). Econometric Models, Techniques and
Applications.