Tag Archives: economic analysis

the role of economic analysis - a reconsideration

A few days ago I went to the recruitment seminar of CREI, and the speaker was Dina Pomeranz from MIT. I don't know her before, but since both Ciccone and Azmat have mentioned her to me, I didn't want to miss her speech. So I was there.

I should admit that she made an interesting presentation. Her topic was pretty attractive - it was about VAT (value added tax). The title of her paper is "No Taxation without Information", and she mainly talks about the links among upstream and downstream firms in the VAT report process. It is pretty interesting that the information transmission plays such an vital role in this reporting cycle - how can we design an experiment/mechanism to prevent those firms from cheating/collusion.

Well, instead of repeating her presentation, I would like to talk about the role of economic analysis here. An interesting question is that: where do those people go after their postgraduate study in economics? I do not have the evidence, but I think that a big proportion of those economics students will end up being an analyst - especially those positions who offered by the government.  Then, they are doing economic analysis from the government's view, and offering advice for those policy makers. Perhaps it is the first time for me to realize that what can economic analysis provide for the running of the society. We are not only building those abstract and seemly useless models, but actually contributing to the constructions of several projects. That sounds somewhat great.

Beginning: Play Econometrics with R

More than  a month without updating... Yes, I was busy doing something else, and that was traveling. I was lucky enough to enjoy a period of free time, and relaxed myself pretty well.

Now it is the time to start something useful, since the spring festival has gone. I need to be responsible for my promise. Therefore, I choose to begin to write the brochure about econometrics and R, the most up-to date statistic software.

Name

Play Econometrics with R

I use "play" to avoid being responsible for any potential academic faults 🙂 Indeed, I will correct the bugs as soon as I know.

Aim

In this brochure, I'll introduce typical econometric methods one by one and their realization in R. Of course, a huge volume of examples and data will appear (and that is the most knotty problem for me at the moment). I'll cover some public examples (i.e. published ones from current books,  e.g Introductory Econometrics: A Modern Approach by Jeffrey M. Wooldridge), and also some meaningful ones (applications in different fields) from scholar articles with data published. I should admit it is a really challenging task, and I need many helps from friends.

Readers

I hope this brochure can be helpful for those groups:

  • the statistics students who begin to know and  use econometrics, especially for economic problems.
  • the economics students who want to improve their analysis with a more powerful tool -- R, instead of Stata or SPSS.

This brochure will help the first group see how econometrics functions in economic analysis, and will bring introductory guide for the second group.

Remarks

More features needed to be announced here:

  • This brochure is totally free, and will published regularly on the Internet. If possible, it will be realized with the help through Git of Cos.name, the biggest online statistics community in China.
  • I'll use Latex (Lyx) + Sweave + R as my tools. For more information about this combination, please see here (in Chinese from Yihui's Blog) .
  • At present, this brochure will be written in Chinese (I'm really sorry). But after several revisions, and if anyone calls for needs, I will rewrite another version in English.

NO.11 Uncertainty, demand elasticity and price determination

Agriculture and modern industry are different from each other in many aspects. Here I use the supply-demand analysis as below.

On one hand, the supply of agricultural productions, such as rice and corn, is heavily relied on environmental conditions like temperature, rain and wind etc. On the contrary, the supply of industrial productions is always steady, or it is only determined on the input of raw materials. Although technology is vital, we can ignore it here since it plays an important role on both (or it will be considered later because it will also influence the degree of uncertainty).

On the other hand, the demand of food (agricultural productions) is always stable, or we can say that the price-elasticity is small, while the demand-elasticity of industrial productions is much bigger. Thus, the most interesting thing is that there is significant difference between them both in the supply and demand side, and if we also take the service-industry into account, this question will become more and more complex and interesting.

Under the traditional assumptions, we usually consider the industry as the typical model, then establish a general equilibrium model. It is reasonable because modern industry make the largest part of GDP. But at the same time, since the uncertainty of output is very limited, there is no need to waste too much on supply analysis. Therefore, we usually ignore the role of uncertainty which do exist in the real world.
Here, I wonder that if we apply this method to the economic analysis of developing or undeveloped countries, where agriculture is still very important in national production, there may be some unrealistic expectations derived from this simplified model.

So if possible, can we make a consideration of uncertainty as well? Maybe a simple way is to assume that var(output) doesn't equal 0. I don't know how to go further, but I think the results will be certainly interesting, especially in the price-determination and equilibrium, and may also be meaningful for policy-makers.