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# Far-western University

## Faculty of Humanities and Social Sciences

Course Title: Basic Econometrics Full Marks: 100
Course No.: Pass Marks: 45
Nature of the Course: Theory Periods per Week: 3
Year: Second, Semester: Fourth Time per Period: 1 Hour
Level: B.A. Total Periods: 50

1. Course Description:
This course is intended to provide an introduction to the theory and applications of econometrics.
Econometrics is the art and science of the testing economic models. The course will focus on the
methods for analyzing data in Economics. Emphases are placed on regression analysis. The
course incorporates seven units. The first unit deals with the nature of econometrics and
economic data. The second unit discusses the concept of random variables and normal
distribution. Likewise, the third unit deals with the covariance, variance and correlation. The
fourth unit deals with the simple regression analysis. The fifth unit discusses on the multiple
regression analysis. The sixth unit concerns with the transformations of variables, and regression
analysis. Finally, the seventh unit introduces dummy variables.

All topics are discussed with emphasis on interpretation of econometric results and their
economic application. Case studies and current economic trends and developments are examined
in Nepalese and global perspectives as far as possible. Students are assumed to be familiar with
elementary statistics, and are expected to learn and use statistical software in the course.

2. Course Objectives:
The general objectives of the course are as follows:
To acquaint the students with introduction of econometrics and economic data.
To help the students to conceptualize random variables and normal distribution.
To enable the students to discuss covariance, variance and correlation.
To discuss simple regression analysis.
To enable the students to analyze multiple regression analysis.
To help the students to use logarithms for transformation of variables.
To acquaint the students with the dummy variables in economic analysis.

3. Specific Objectives and Contents:

Specific Objectives Contents
Explain the meaning of
econometrics.
Discuss the methodology of
econometrics.
Analyze the types of economic
Unit I: The Nature of Econometrics and Economic Data
(5)
1.1 Meaning of Econometrics
1.2 Methodology of Econometrics
1.3 Types of Data
data.
Explore the sources of data.
1.3.1 Time Series Data
1.3.2 Cross-Section Data
1.3.3 Pooled Data

1.4 Sources of Economic Data

Explain the concept of random
variables.
Analyze normal distribution.
Unit II: Random Variables and Probability Distributions
(5)
2.1 Random Variable
2.1.1 Meaning of Random Variable
2.1.2 Types of Random Variables: Discrete and
Continuous Random Variables
2.2 Probability Distributions
2.2.1 Meaning of Probability Distribution
2.2.2 Normal Distribution

Explain the concept of
covariance, variance and
correlation.
Discuss the basic rules of
covariance and variance.

Unit III: Covariance, Variance and Correlation (10)
3.1 Sample Covariance
3.1.1 Meaning of Sample Covariance
3.1.2 Basic Rules of Sample Covariance
3.2 Population Covariance
3.3 Sample Variance
3.3.1 Meaning of Sample Variance
3.3.2 Basic Rules of Sample Variance (without
proof)
3.4 Population Variance
3.5 Correlation in terms of Variance and Covariance

Analyze the simple linear
model.
Explain the concept and
significance of stochastic error
term.
Use ordinary least squares
method in regression analysis.
Explain the assumptions
underlying ordinary least
squares method.
Interpret linear regression
equation.
Explain the concept of
goodness of fit.
Unit IV: Simple Regression Analysis (12)
4.1 The Simple Linear Model
4.2 Stochastic Error Term
4.2.1 Concept of Stochastic Error
4.2.2 Significance of Stochastic Error term

4.3 The Ordinary Least Squares Method (OLS)
4.3.1 Basic Concept of OLS
4.3.2 Assumptions underlying OLS
4.4 Interpretation of a Linear Regression Equation
4.5 Goodness of Fit (R
2
)

Explain the concept of multiple
regression analysis.
Interpret multiple regression
coefficients.
Unit V: Multiple Regression Analysis (5)
5.1 Basic Concept of Multiple Regression Analysis
5.2 Interpretation of Multiple Regression Coefficients

Distinguish linear and non-
linear relationships.
Analyze the significance of
non-linear relationship.
Analyze log-linear regression
model.

Unit VI: Transformations of Variables ; and Regression
Analysis (5)
6.1 Difference between Linear and Non-linear
Relationships
6.2 Significance of Non-linear Relationship
6.3 Regression Analysis of Log-linear Model
Explain the concept of dummy
variables.
Analyze the need for dummy
variables in economic analysis.
Explain dummy variable trap.
Unit VII: Dummy Variables (8)
7.1 Basic Concept of Dummy Variables
7.2 Need for Dummy Variables
7.3 Dummy Variable Trap

Note: The figures in the parentheses indicate the approximate periods for the respective units.

4. Instructional Techniques:
Lecture and discussion
Group work and individual work
Self study
Assignments
Presentation by students
Term paper writing
Quizzes
Guest lecture

5. Evaluation System:

Mathematical Methods for Economics
External Evaluation Weight Marks Internal Evaluation Weight Marks
End semester examination 100% 60 Assignments 10%

40
Quizzes 10%
Attendance 10%
Presentation 10%
Term papers 10%
Mid-Term exam 40%
Group work 10%
Total External 100% 60 Total Internal 100% 40
Full Marks: 60 + 40 = 100

6. End Semester Examination Model:

Full marks: 100, Pass marks: 45, Time: 3 Hrs

Nature of Question Total
questions
to be
Total questions
Total
marks
Weightage External
exam
marks
Group A: Multiple
choice
20 20 201 = 20 20% 12
type question
11 8 85 = 40 40% 24
type question/ case
studies
6 4 410 = 40 40% 24
100 100% 60

7. Prescribed Books:

Text Book
Gujarati, D.N. & Sangeetha. (2007). Basic Econometric, Fourth edition, New Delhi: The
McGraw Hill Companies.
Dougherty, C. (2011). Introduction to Econometrics. Fourth edition: Oxford University
Press.

Reference
Wooldbridge, J.M. (2013). Introductory Econometric: A Modern Approach, Fifth edition:
South-western College Publications.