Chapter 1: Introduction to Mastering 'Metrics
The book, Mastering 'Metrics written by Joshua D. Angrist and Jörn-Steffen Pischke is a comprehensive guide to understanding econometrics. This book is a valuable resource for students and researchers who want to learn about the application of econometric methods and techniques in different real-life scenarios. In this first chapter, the authors introduce the readers to the world of econometrics and provide a brief overview of what to expect in the subsequent chapters.
To illustrate the importance of econometrics in the real world, the authors start with a simple but impactful example. They discuss the famous Minimum Legal Drinking Age (MLDA) laws in the United States. These laws were introduced in the 1980s to reduce alcohol-related injuries and deaths among teenagers. The MLDA laws, which set the legal drinking age to 21, have been successful in achieving their goal according to various studies. But, was this really the case? This is where the role of econometrics comes into play.
Chapter 2: Getting Started
In this chapter, the authors dive into the basics of econometrics, starting with data collection and measurement. They explain the importance of using reliable and accurate data for conducting econometric analysis. To illustrate this, the authors use the example of a study that investigated the impact of education on earnings. The study used data from the National Longitudinal Survey of Youth (NLSY), a nationally representative dataset of individuals in the United States. The authors emphasize the importance of understanding the measurement and limitations of the variables used in the dataset to avoid biased results.
Chapter 3: Graphing Data
In this chapter, the authors introduce the readers to the visual representation of data using graphs. They explain the different types of graphs and their uses, such as histograms, scatter plots, and box plots. To illustrate the concept, the authors use the example of a study that examines the relationship between education level and income. The authors use scatter plots to graphically present the relationship between the two variables and explain how this can be helpful in identifying patterns and trends in the data.
Chapter 4: Under the Hood
In this chapter, the authors delve into the technicalities of statistical inference, including hypothesis testing and p-values. They explain how these methods are used to test the validity of economic theories and models. To illustrate this, the authors use the example of a study that investigates the effect of class size on students' test scores. The authors walk through the different steps of the statistical analysis and emphasize the importance of interpretation and understanding of the results.
Chapter 5: Attack of the Clones
In this chapter, the authors discuss the issue of autocorrelation, which occurs when the error terms in a regression model are correlated with each other. They explain the impact of autocorrelation on the statistical inference and the methods used to detect and address it. To illustrate this, the authors use the example of a study that examines the relationship between inflation and unemployment rates. The authors explain how autocorrelation can lead to biased results and show how it can be corrected using appropriate econometric techniques.
Chapter 6: Death and Taxes
The authors discuss the important concept of causality in this chapter, using the example of a study that investigates the impact of taxes on mortality rates. They explain the difference between correlation and causation and the methods used to establish causal relationships. The authors highlight the significance of proper control variables and robustness checks in establishing causal relationships in econometric analysis.
Chapter 7: Instrumental Variables in Action
In this chapter, the authors introduce instrumental variables (IV) as a powerful econometric tool for dealing with endogeneity, the issue of variables being correlated with the error term. They use the example of a study that examines the effect of education on earnings, taking into account the potential endogeneity of education. The authors explain how the use of IVs can provide unbiased estimates, and demonstrate through a step-by-step process how to identify and use appropriate instruments in an econometric analysis.
Chapter 8: Big Data Redux
In the final chapter, the authors discuss the challenges and opportunities presented by the increasing availability of "big data." They explain the differences between big data and traditional data and the potential benefits and drawbacks of using big data in econometric analysis. To illustrate this, the authors use the example of a study that examines the relationship between internet usage and economic growth. They highlight the importance of data cleaning and modeling in dealing with large and complex datasets.
In conclusion, Mastering 'Metrics provides a comprehensive understanding of econometric methods and their application in real-life scenarios. By using relevant examples and cases, the authors make the concepts and techniques of econometrics accessible and understandable for both students and researchers. This book is a valuable resource for anyone looking to build a strong foundation in econometric analysis.
