Essential Statistics, Regression, and Econometrics

CHAPTER 11

Modeling (Optional)

Chapter Outline

11.1 Causality

11.2 Linear Models

11.3 Polynomial Models

Interpreting Quadratic Models

11.4 Power Functions

Negative Elasticities

The Cobb-Douglas Production Function

11.5 Logarithmic Models

11.6 Growth Models

The Miracle of Compounding

Frequent Compounding

Continuous Compounding

11.7 Autoregressive Models

Exercises

Econometricians, like artists, tend to fall in love with their models.

—Edward Leamer

An explicit model has many advantages. First, equations clarify our beliefs in ways that mere words do not. Second, data can be used to estimate and test an explicit model. Finally, an explicit model can be used to make specific predictions.

11.1 Causality

A model should have a theoretical underpinning. ...