UIUC ECON 452 - ECON452_L3 (18 pages)

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ECON452_L3



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ECON452_L3

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Pages:
18
School:
University of Illinois at Urbana, Champaign
Course:
Econ 452 - The Latin American Economies
The Latin American Economies Documents

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Lecture Notes 3 Review of Sta4s4cs ECON 452 Fall 2016 The La4n American Economies Instructor Fabr cio d Almeida Empirics Economists rely on collected data to run its experiments Hard to create a country in a lab Sta4s4cs and Econometrics provide valuable tools to mimic a lab environment allowing scien4sts to put their theories under the test of evidence Road Plan Review of Expecta4on Variance and Covariance The role of Covariance in diversi ca4on The case of mono export countries vs diversi ca4on Test of hypothesis a brief review Econometrics OLS How to perform How to interpret Sta4s4cal Review Random variables a variable whose value is uncertain If X is a random variable for each possible outcome of X set as xi there is an associated probability pi for xi becoming the value of X where i is the ordering of each possible outcome and 0 pi 1 and pi 1 Sta4s4cal Review tical Review For a random variable X its expected value and variance are de ned and predicted as ion Expecta4on measured by the mean E X X n X pi x i i 1 nthe square of the a E X Variance b E Y measured byP E X the X pb2i xVi ar Y X mean Y a2 V devia4on ar X 2 afrom b Cov Y i 1 V ar X s n P 2 X n ar X VP pi xi i 1 2 X 2 X n P i 1 pi xi X 2 Sta4s4cal Review From variance a related E X we pi xi X construct i 1 measure standard devia4on s d n P 2 2 n P V ar X s d X X s n P i 1 i 1 pi xi pi xi X X 2 When referring to random variables on nance such as prices costs and returns the term vola4lity is used in place of s d Example The change on the value of exports from a country for the following year is a random variable We can say there is some chance that it will fall some chance that will remain constant and some chance that it will increase But we are never certain of the true value un4l the 4me comes by How to make a predic4on about it We can t rely on some to be precise The use of expecta4on and variance can help us Let s say the country is Argen4na and that they rely solely on the exports of beef n P Fabr



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