ECN 201 – Economic Data Analysis

1. ECN 201 – Economic Data Analysis Michael S. Lawlor Dept of Economics Wake Forest University

2. 1st Day of Class - Overview • Required Class for Econ. Majors/Minors • Satisfies data analysis requirement for HPA • Intro To Econ – ECN 150 – only prerequisite

3. Course Material • No text • All readings posted on the website or handed out in class • Website should become familiar to students • http://www.wfu.edu/~lawlor/econ201.html • Become familiar with it

4. Grading • Quiz grade: 10% • Participation 10% • Data Project 1: 40% • Data Project 2: 40%

5. Quizzes and Participation • Quizzes Possible on any day, except where noted on schedule • Graded quickly and returned quickly • 1 of 3 usual grades: • 95: Evidence of having read reading and understanding it correctly • 85: Evidence of having read reading, but misunderstood something • 50: Evidence of not having done reading • 0: Absent (note even without having done the reading there is an incentive to come to class)

6. Quizzes, contd. • Quizzes will be recorded throughout the semester, lowest grade thrown out • Homework averaged in (see unit #4) • 3 motivations for quizzes (all with students learning in mind) • 1: Reward conscientious attention to material • 2: Emphasize 1 or 2 main points of reading • 3: Provide daily feedback to the instructor. • Remember no tests

7. Quiz and participation in class • Attendance crucial • Class and quizzes cannot be made up • Will go over all software in class • Other than this, participation in class also encouraged by participation grade • Both are gifts to the conscientious student • Designed with student in mind

8. Projects • Economic Applications of Publicly Available Data • Detailed and exact • Graded on neat, clear presentation and accuracy • Note due dates and late penalty (with one day of grace) • 1st on OECD Health Data (cross sectional), 2nd on History of U.S. Consumption to today (time series)

9. Economic Data Analysis • Economics wants to explain social phenomena and be applicable • Requires knowledge of history, politics, institutions, economic theory and DATA • “Data:” etymology from the Latin, dare, to give (singular datum, plural data)

10. Nature of Economic Data • Generally not handed to us, or experimental, but takes time, money and effort to collect and disseminate • By some computer assisted bureaucracy, now • Economic data, more or less accurately, measure some economic phenomenon • Are a given in the sense that, once obtained, they cannot be altered • In this sense, serve as our knowledge of economic reality

11. Three Levels of Economic Data Analysis • 1. May provide initial background information • example: the health insurance market • 2. Added to introspection, logic, mathematics, creativity and prior theory, provide the basis of “theory” • 3. Form the basis for testing economic “theory” against data • Formally this is econometric model specification and testing, we will show less formal tests

12. Summary and Review • Stage One – Data Exploration • Stage Two – Theoretical Statement of Economic Behavior • at the least informal and implicitly • at the most formal, by explicit and falsifiable hypothesis statements • Stage Three - A Formal statistical test of these statements • - Hypothesis testing

13. This course is interested in #1 and (the beginning) of #3 • We will explore data, and learn techniques and software tools for displaying and analyzing data at the first stage • We will call it “Data Exploration” • We will analyze a part of macroeconomic theory (the “consumption function”) to begin to see how economic theory is empirically implemented at the 3rd stage

14. Fit with economic curriculum • Will give a taste for the “realistic” application of what you learn in 205, 206, 207 • Will improve your papers in electives • Will complement, and make relevant to economics, Math 109 (required) • For students that really enjoy this material, a more formal treatment is 215, econometrics

15. Software • No prior knowledge of any software required • Hands-on instruction on your laptop of all software used: GRETL and Excel • Main program GRETL was written by a Professor in our Econ. Dept. (Prof. Cottrell). • Is free to the user and continuously updated

16. Data: The A priori and Empirical • Handout from website • A priori: means “prior to experience” • Known by the exercise of reason alone, without requiring sensory or experimental input • In contrast, Empirical: means “pertaining to or founded upon, experiment or experience”

17. Is this a clear-cut dichotomy? • Can distinguish the ideas in our minds and the proof necessary to make them true • For a priori: a process of reasoning that can be done internally • With logic or mathematics perhaps • For empirical: need some evidence of past examples

18. Some statements are pure examples of each… • Two plus two equals four • The car that just went by was red • There can be no such thing as a round triangle • There can be no such thing as a blue swan

19. Some statements are compounded of the two ideas… • The earth is 93 million miles from the sun • It is clearly an empirical statement, but the measurement may depend on the truth of much logical and mathematical deduction from a priori ideas • The boiling point of water at sea level is 100 degrees Celsius • Same, think of how the Celsius scale is set up

20. Economic Propositions are of both kinds • Consumers can generally be regarded as rational • Clearly taken by most economists as an a priori assumption • To the extent it has been questioned by behavioral economists, it is considered an “anomaly” • Monopoly is detrimental to the pace of technical progress in an industry – both

21. First Quiz: An exercise • From the field of microeconomics, identify one proposition that seems clearly a priori • And one that seems clearly empirical • Write them down in the form of 2 statements.

22. Special Focus – Fall 2008 • Credit Crisis and Subprime Mortgage Mess • Will connect to last project on the “consumption function” • Will see how savings and consumption behavior changed since 1990

23. Special Author and Speaker • John Duca, Economist and V.P for Research – The Federal Reserve Bank of Dallas • We will read two of his papers • He will give a public talk (mandatory for this class) on Oct. 15 at 4:00, in Annenberg Forum, Carswell Hall • Mark you calendar now