Student Review: Econometrics by Example

May 24, 2012

Author: Damodar Gujarati

Edition: First

Publisher: Palgrave Macmillan

Pages: 416

Price: £39.99

ISBN: 9780230290396

Few students enjoy econometrics, but Damodar Gujarati's Econometrics by Example makes it as good as it's going to get. This textbook uses practical examples of economic problems (28 in all) to illustrate econometric theory; accordingly, it should prove a staple for anyone using econometric methods.

It covers all the necessary topics for undergraduate courses in economics or related disciplines: the classical linear regression model, diagnostic tests on regression models, analysis of cross-sectional data and analysis of time-series data. Readers will need prior knowledge of statistics and simple linear regression, although a brief outline of these is provided in the statistical appendix.

All too often, textbooks give students an understanding of the theory behind an econometric method but no idea of how to apply it. Econometrics by Example resolves this problem. Methods and models are analysed using cases from real economic studies, and results from EViews and Stata (the statistical software packages) are presented and interpreted. Where there may be a difficult choice between methods, practical advice is given on how to make the decision. Thus, a student learns not only theory but - crucially - how to carry out a full econometric analysis on a particular hypothesis from start to finish.

There is no shying away from complexity: the assumptions behind each test are exposed and challenged; nuanced econometric concepts, such as the precise meaning of a confidence interval, are explained carefully; and frequent warnings are given on the dangers of overusing econometric techniques.

There are a few blips that mar an otherwise excellent book. Exercises at the end of each chapter would have been far more useful if the answers were available to students (not just to lecturers) on the companion website. A few difficult concepts are not illustrated by example at all, which renders their exposition in the book rather pointless.

Overall, its key advantage - the exposition of econometric concepts through detailed examples - is also its key flaw. In adding the examples, it necessarily loses some of the detailed theory found in other undergraduate econometrics textbooks. Occasionally, the derivation of a test statistic or the underlying rationale behind a test is omitted. For this reason, students looking for a deep understanding of econometric theory must look elsewhere. But Econometrics by Example will be invaluable for anyone wanting to understand how to put econometric techniques into practice.

Who is it for? Undergraduates in economics and related disciplines.

Presentation Attractive and clear, with useful graphs and tables.

Would you recommend it? Definitely, but as a companion to another textbook that deals mostly with theory. I would not recommend it as a stand-alone econometrics textbook.

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