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Intro to Econometrics
Using Excel for Estimation
Descriptive Statistics
• Measures of CentralTendency– Mean• The average
– Median• The middle
– Mode• The most frequent
Descriptive Statistics
• Measures of Dispersion– Range– Standard Deviation
Normal Distribution
• EX – Grades– Test average is a 75– Standard Deviation is 10 points
68.2% of the grades will be between65 and 85
Normal Distribution
• EX – Grades– Test average is a 75– Standard Deviation is 10 points
95.4% of the grades will be between55 and 95
Linear Regression
• Suppose we wish to find out how attendance affects your grade
• We can estimate the following linear regression using ordinary least squares (OLS)
Linear Regression
Grade
Attendance
.
..
.
.
..
.
𝐺𝑟𝑎𝑑𝑒=𝛽𝑜+𝛽1 𝐴𝑡𝑡𝑒𝑛𝑑𝑎𝑛𝑐𝑒+𝜀𝑡
𝛽𝑜
𝛽1
Statistical Significance
• We can say an estimate is “statistically significant” at the 95% level if we can construct a confidence interval around the estimate that does not include zero
• EX .358 < β < 1.25• That is to say, we are 95% confident that there
is a positive relationship between y an x
Normal Distribution
• Statistical Significance– We are 95% confident that the estimate, , is not 0
Side note, Rule of thumb: if the t-statistic is larger than 2 then we can be 95% sure that the estimate is not zero
Getting Started
• First, you will need to load the “Analysis ToolPak” add-in if it is not already installed– Office Button– Excel Options
Getting Started
1. Click Add-Ins2. Select Analysis
ToolPak3. Click Go 1
2
3
Getting Started
• Select the Analysis ToolPak and hit OK• Once it has loaded your top bar
should include a new icon underthe Data tab
Application
– On the website, there is data on the quantity, price, and average income for different sales areas for the Kalamazoo Brewing Company
Application
– Use this data to compute descriptive statistics for each state provided (IL, IN, MI)
– Use this data to find estimates for the following demand function