1.6 A Research Format
1.It all starts with a problem or question
2.Economic theory gives us a way of thinking about the problem: What economic variables are involved and what is the possible direction of the relationship(s)?
3.The working economic model leads to an econometric model. We must choose a functional form and make some assumptions about the nature of the error term.
4.Sample data are obtained, and a desirable method of statistical analysis chosen, based on our initial assumptions, and our understanding of how the data were collected.
5.Estimates of the unknown parameters are obtained with the help of a statistical software package, predictions are made and hypothesis tests are performed.
6.Model diagnostics are performed to check the validity of assumptions we’ve made. For example, were all of the right-hand-side explanatory variables relevant? Was the correct functional form used?
7.The economic consequences and the implications of the empirical results are analyzed and evaluated. What economic resource allocation and distribution results are implied, and what are their policy-choice implications? What remaining questions might be answered with further study or new and better data?
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