EC404 - Winter 2011 Archana Aggarwal

Introduction to Statistics and Econometrics 307, SSS-II

Course Outline and Readings

Pre-requisites:
A familiarity with basic algebra, calculus (both differential and integral) and basic statistics -
frequency tables, measures of central tendency, dispersion, association and correlation, is assumed.
Students not conversant with these tools should see me as soon as possible.

Topics Covered:
This course will provide a solid foundation in probability and statistics for economists. We
will emphasize topics needed in the further study of econometrics and provide basic preparation
for Econometrics I. The first part of the course will focus on probability theory and basic
probability models. The second part will study the theory of estimation and issues in statistical
inference. The simple, two variable, linear, regression model will be analyzed. The topics covered
will be:

1. Theory of Probability
Introduction to basic concepts of probability theory - sample space and event space, independent and
mutually exclusive events, laws of probability, conditional probability and Bayes theorem.
Random variables and their probability distributions. Theory of mathematical expectation, moment
generating functions and characteristic functions. Joint, marginal and conditional distributions. The
concept of regression. Covariance and correlation.
Discrete distributions: repeated trials and sampling, the binomial distribution, the geometric
distribution, the Poisson distribution and the uniform distribution.
Chebyshev's Inequality, the law of large numbers and the Central Limit Theorem. Transformation of
variables.
Continuous probability distributions: Gamma and normal distributions, sampling distributions.
Bivariate normal distribution and the concept of linear regression.
2. Theory of estimation
Desirable properties of a good estimator. Sufficient statistics. Methods of estimation: least squares
method, maximum likelihood method, method of moments, Bayesian method. Introduction to
asymptotic theory.
3. Statistical inference
Neymann-Pearson lemma, critical region, confidence intervals, Type-1 and Type-2 errors. Tests
based on t, F, Z and Chi-squared distributions.
4. Linear regression analysis
The Gauss-Markov Theorem and estimation of the two variable, classical, linear regression model.
Interpretation of the regression coefficients. Goodness of fit. Hypothesis testing in the linear
regression model.
Readings:
The course will not follow any one textbook. However, based on past experience I
recommend Freund, J., Mathematical Statistics, (1992) Prentice Hall as the basic text for topics
1-3. (Later editions are acceptable.) For the section on regression you will need to consult G.S.
Maddala's Introduction to Econometrics, (1989) Macmillan. Other useful texts:

1. Hoel, Port and Stone, Introduction to Probability Theory, (1991) Universal Book Stall.
2. Hoel, Port and Stone, Introduction to Statistical Theory, (1991) Universal Book Stall.
3. Hogg and Tanis, Probability and Statistical Inference, (1989) Maxwell Macmillan.
4. Mood, A.M. and Graybill, F.A., Introduction to the Theory of Statistics, (1986) McGraw-Hill.
5. Maddala, G.S., Econometrics, (1988) McGraw-Hill.
6. Ruud, P., An Introduction to Classical Econometric Theory, (2000) Oxford University Press.
7. Wooldridge, J.M., Introductory Econometrics, (2000) Southwestern.

Evaluation:
Your grade will be based on a midterm and a final exam. The final will be cumulative, i.e.,
the entire syllabus will be covered. Each will have 50% weight. All exams will be closed-book.
Some practice problem sets will be given out and their solutions discussed with the class. However,
it is not enough to solve these problems. You must also solve exercises given in the texts.

Miscellaneous:
Course material supplements will be handed out in class, uploaded to the net or placed on
reserve with the photocopy center located in the basement. A soft copy of the book by Mood and
Graybill has been loaded onto the CESP server.