Introduction

The nature of statistics

Statistics refers to the collection, presentation, analysis, and utilization of numerical data to make inferences and reach decisions in the face of uncertainty in economic, business, and other social and physical sciences.

Statistics is subdivided into descriptive and inferential. Descriptive statistics is concerned with and describing a body of data. Inferential statistics is the process of reaching general about the whole called the population y examining a portion called the sample. In order for this to be valid, the sample must be representative of the population and the probability of error also most be specified.

Descriptive statistics is discussed in detail in chap. 2. this is followed by the more crucial statistical inference, chap. 3. deals with probability. Chap. 4. with estimation, and chap. 5. with hypothesis testing.

Example 2.

Consumption theory tells us that in general, people increase their consumption expenditure c as their disposable after tax income y increases, but not by as much as the increase in their disposable income. This can be stated in explicit linear equation form as.

Were b and b are unknown constants called parameters. The parameter b is the slope coefficient representing the marginal propensity to consume MPC. Since even people with identical disposable income are likely to have somewhat different consumption expenditures the theoretically exact and deterministic relationship represented by Eq. must be modified to include a random disturbance or error term, u making it stochastic.

The Methodology of econometrics

Econometric research, in general, involves the following three stages:

1. specification of the model or maintained hypothesis in explicit stochastic equation form together with the a priori theoretical expectations about the sign and size of the parameters of the function.

2. collection of data on the variables of the model and estimation of the coefficients of the function with appropriate econometric techniques presented in Chaps. 6 to 8.

3. evaluation of the estimated coefficients of the function on the basis of economic, statistical and econometric criteria.