ECON20003: QM2

WEEK 1: INTRODUCTION AND GENERAL

INFORMATION ABOUT QUANTITATIVE METHODS 2
(QM2) ESTIMATION AND HYPOTHESIS TESTING OF A
POPULATION MEAN
References:
S: § 9.3-9.4, 10.1-10.3, 10.5, 12.1-12.4
W: Ch 1-2, § 3.1-3.6, 3.8-3.9
Notes prepared by:
Dr László Kónya and
Dr Mehmet Özmen

Faculty of Business and Economics

Department of Economics
 INTRODUCTION AND GENERAL INFORMATION

Subject Coordinator
and Lecturer: Dr Mehmet Özmen
Office: 352, 3rd floor, FBE Building
Phone: 9035 8912;
Email: mehmet.ozmen@unimelb.edu.au
Consultation hour: Tuesday 13:00 - 14:00 in my office

Lectures: There are two one-hour lectures a week across two streams.
(1) TUE 14:15 – 15:15 (Public Lecture Theatre)
OR TUE 17:15 – 18:15 (CoplandTheatre)
AND
(2) WED 15:15 – 16:15 (David P. Derham Theatre)
OR WED 17:15 – 18:15 (Brown Room)

The lectures will be (i) in-person and (ii) recorded and made available on LMS
UoM, ECON 20003, Week 1 2
Tutorials: Start in week 1.

Subject website: LMS

The subject guide, some review resources, the lecture notes and the
tutorial materials can be downloaded from this website in due time.
Also, time to time, important messages might be uploaded onto the
subject website, so visit it regularly.

Texts: In this subject you will learn topics from intermediate

statistics and introductory econometrics alike.

Two recommended texts

UoM, ECON 20003, Week 1 3

 Prescribed text (W): Recommended text (S):
Wooldridge, J.M. et al. (2021): Selvanathan, E.A. et al. (2021):
Introductory Econometrics Asia- Business Statistics, 8th edition,
Pacific Edition, 2nd edition, Cengage Learning Australia.
Cengage Learning Australia.

These books can be purchased online. See the details in the Subject Guide.
UoM, ECON 20003, Week 1 4
Software:

Both programs are free. R can be downloaded from the

Comprehensive R Archive Network (CRAN) website
(https://cran.r-project.org/), while RStudio is available at
https://www.rstudio.com/products/rstudio/download/.
You can find the instructions for downloading and installing R and
RStudio on a Windows computer in the Tutorial 1 handout and in
the first R video. If you have a Mac, you can get help from Student
IT at https://studentit.unimelb.edu.au/.
You will need to use these programs to complete the assignments.
UoM, ECON 20003, Week 1 5
Prerequisites:
Quantitative Methods 1 (ECON10005), or an equivalent subject.
QM2 students are supposed to master the topics discussed in Chapters
1-13, 17-18 of the S(elvanathan) book. Namely,
Graphical descriptive techniques and numerical descriptive statistics;
Joint, marginal and conditional probability;
Random variables and probability distributions (binomial, uniform,
normal and t);
Sampling distribution, estimation and hypothesis testing of one
population mean and the difference between two population means;
Simple linear regression and correlation.

Some but not all these topics are reviewed in the Revision slides, which
are available on Canvas. You might also look at
https://creativemaths.net/blog/videos-for-teaching-and-learning-statistics/.

UoM, ECON 20003, Week 1 6

In QM2 we have four aims:
• To learn quantitative skills that are essential in the majority of jobs that
business, commerce and economics graduates obtain.
• To implement these skills using examples from accounting, management,
marketing, economics and finance.
• To perform the various statistical procedures using the R statistical
software and RStudio.
• The focus is on choosing the appropriate technique for each problem,
implementing it correctly, and interpreting the results.

Subject overview:
Building on QM1 or some equivalent prerequisite unit, QM2 is structured
as follows.
Part 1: Statistical inference about one, two or more populations with
parametric and nonparametric techniques (6 weeks)
Part 2: Regression analysis with cross-sectional data (4 weeks)
Part 3: Regression analysis with time series data (2 weeks)
UoM, ECON 20003, Week 1 7
Part 1: Hypothesis testing of populations

Week 1: Introduction
Review of estimation and hypothesis testing
of a single population mean
Week 2: Desirable properties of point estimators
Parametric and nonparametric techniques
The assumption of normality
Week 3: Comparing two population means or central locations with
parametric and nonparametric techniques
Week 4: The chi-square, t and F distributions
Inferences about one or two population variances
Inferences about one or two population proportions
Week 5: Comparing several population means with analysis of variance
Week 6: Chi-square tests for the analysis of frequencies
… UoM, ECON 20003, Week 1 8
Part 2: Advanced Linear Regression

Week 6: … Histogram of Residuals

Measures of association

60
Frequency

40
Week 7: Linear regression: specification, estimation and assessment

20
Week 8: General F-test

0
Omitted and irrelevant variables -0.5 0.0 0.5 1.0

Residuals
Alternative functional forms
Normal Q-Q Plot of Residuals
Multicollinearity

Sample Quantiles
Week 9: Heteroskedasticity

0.5
Using the sample regression equation

0.0
Dummy independent variables in regression models

-0.5
-3 -2 -1 0 1 2 3
Week 10: Dummy dependent variable regression models
Theoretical Quantiles

UoM, ECON 20003, Week 1 9

Part 3: Timeseries

Week 11: Cross-sectional vs. time-series data

Regression analysis with time series data
Autocorrelation

Week 12: Stationary and non-stationary processes

Spurious regression Residuals vs Lagged Residuals

0.05 0.10 0.15

Dickey-Fuller unit root tests

e(t)

-0.05
-0.05 0.00 0.05 0.10 0.15

e(t-1)

UoM, ECON 20003, Week 1 10

Assessment: Tutorial participation and homeworks 10%
Three assignments 15%
Mid-semester test 5%
Final exam 70%
Tutorial classes:
Learn and practice the selection and the implementation of
appropriate statistical techniques both manually (i.e., with a calculator)
and with R in a wide range of examples.

Casio FX82 (with any suffix) calculator, or something similar, and to be

able to use it efficiently (including its STAT mode). If you do not know
how to do so, see the manual on Canvas.

Before each tutorial

i. Attend / watch the previous week’s lecture.
ii. Go through the relevant tutorial handout. They are self-
explanatory and sufficiently detailed, so follow the instructions, and
reproduce the illustrative example(s).
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 iii. If you run into some problem and need help, ask your tutor before or
during the tutorial class for assistance, but do not expect your tutor
to cover the entire handout.

After each tutorial, attempt the “Exercises for assessment”, submit

your solutions and answers via Canvas Quiz by 10am on Wednesday
the following week (see further details in the Subject Guide).
To get the 10% credit for tutorial participation and homeworks, at least 10
weeks you must (i) attend the tutorial and (ii) submit the homework from
the previous tutorial in time.

Three assignments:
There will be three assignments for 5% credit each.
i. Online submission via Canvas.
ii. Students can work alone or in a group of two (not three or four …).
iii. Students in a group must submit a single copy of their assignment
and will get the same assignment marks.
iv. No late assignments are accepted and no extensions will be given.
12
UoM, ECON 20003, Week 1
 Mid-semester test:
There will be one online mid-semester test for 5%.
i. Students can undertake the test online via LMS at any time of their
choosing between 8am and 6pm 1 September.
ii. The test will cover the material presented during lectures up to the
end of week 4 and in the tutorials up to the end of week 5.
iii. The test will consist of 10 multiple choice questions and 5 true or
false questions.
iv. There is a time limit of 30 minutes to complete the test.
v. To complete the test successfully students will need to have critical
value tables for each of the distributions covered during the lectures,
a formula sheet and a calculator.

Note: Students who lose some internal (i.e., tutorial homework, assignment
or mid-semester test) marks for valid reasons can apply for special
consideration to get the lost marks transferred to the final exam.

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Final exam at the end of the semester:
It is worth 70% of the final grade for this subject.
i. It will be a 2-hour in-person exam during the University's normal
end of semester assessment period.
ii. The exam will cover all materials discussed during lectures and
tutorials throughout the semester.
iii. There will be no surprises. The questions and tasks on the final
exam will be similar in terms of style and difficulty to those in the
tutorial problem sets, in the assignments and in the mid-semester
test.
iv. It will be a closed-book exam, so formula sheet and statistical tables
will be provided with the exam.
v. On the exam students will neither be asked nor tested on how to use
R / RStudio, but they will need to be familiar with R printouts.
vi. Students must pass the exam, i.e. to achieve 50% of the total exam
mark, to successfully complete the subject.

UoM, ECON 20003, Week 1 14

If you wish to complete this unit successfully

• Watch the lecture videos and participate in the tutorials

every week.
• Read the relevant chapter(s) from the prescribed and/or
recommended textbooks every week.
• Work on the tutorial problems every week.
• Cooperate with your fellow students.
• If you do not understand something, get help as soon as
possible before you miss too much – ask your tutor, your
lecturer, or visit the Ed Discussion Board on LMS.
• Repeatedly review what you learnt previously in
order to reinforce everything several times.
 https://xkcd.com/925/

We begin next lecture…