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EES 404: Economic Modelling and Computer Simulation Notes

Institution: Kenyatta University

Course: Bachelor of Economics

Content Category: Lecture Notes

Posted By: davidkariuki1010

Document Type: DOCX

Number of Pages: 69

Price: KES 200
 
    

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Summary

COURSE DESCRIPTION

INTRODUCTION
This course is a hands-on application course that aims at utilizing the knowledge gained so far to using software in performing analysis of various kinds.
The main objective therefore, is to develop the students’ knowledge in data analysis and modeling with the aid of various computer software, and then to motivate their desire to utilize the knowledge gained in their careers.
You are thus strongly encouraged to have a personal laptop or computer on which software will be installed, ready for the learning practice.

OBJECTIVES
Economic Modeling and Computer Simulation introduces you to the concept of models: definition, types, characteristics and uses of models. Thereafter, will have hands-on experience of computer software, especially STATA, EViews, Excel and LiPS.
Macroeconomic Modeling will then be discussed, in particular, to appreciate modeling practices by Ministries of Finance and/or Planning, Models by the IMF and Word Bank, Models by Central Banks, and so on.
The aim therefore, is to introduce the learners to Economic Modeling and their practical application by use of computer software, and use models for the basis of decision making. The aim is to help the learners appreciate the techniques and types of economic models, and they can use the knowledge in modeling and simulating various policies and issues of interest to economists. This is a relatively new area of study.
While prior knowledge of Econometrics is very important, and may be an added advantage to modelers, it is not a prerequisite for the course, as learning the skills of Econometrics will form part of the training in this course.

TABLE OF CONTENTS
Lecture 1: Introduction to Economic Modeling and Computer Simulation
1.1 Introduction
1.2 Economic Models
1.2.1 Definition of a Model
1.2.2 Features of a Model
1.2.3 Model Validity
1.2.4 Elements of an economic Model
1.2.5 Characteristics of a Model
1.2.6 Types of Economic Models
1.3 Evaluating the Quality of a model
1.4 Steps in Econometric Modeling
1.5 Uses of Economic Models
1.6 Activity One

Lecture 2: Modeling, Data Analysis and Simulation in STATA, EVIEWS, Excel and LiPS Software
2.1 Introduction
2.2 Data analysis using Stata
2.3 Data analysis using EViews
2.4 Data analysis using Excel
2.4.1 Preparing an Income statement
2.4.2 Preparing a variance workbook
2.4.3 Preparing graphs and charts
2.4.4 Performing Logical Functions
2.4.5 Performing Financial Functions
2.4.6 Linear Programming Model
2.4.7 Hypothesis testing for the difference between two sample means

Lecture 3: Time Series Econometrics

Lecture 4: Macro-economic Modeling

Lecture 5: System Dynamics

Lecture 6: Economic Dynamics
LECTURE ONE: INTRODUCTION TO ECONOMIC MODELING AND COMPUTER SIMULATION
1.1 Introduction
Economists often seek to understand the nature and functioning of various types of economic systems. In doing so, they rely on the relationships that exist among various economic variables, and use such relationships to make predictions or forecasts of how the system will change, if economic agents change their behavior or plans, or if variables adjust.
This process, however, must be guided by economic theory in order to establish such relationships (models), to test their predictability or forecasting power, and if possible, revise such models in the light of new information. This is the concept of economic modeling, which simply put, is the process of creating models to study some phenomena of interest.
Economic modeling is generally defined as A SCIENTIFIC APPROACH OF SOLVING ECONOMIC PROBLEMS THROUGH CREATION OF APPROPRIATE MODELS, BEING GUIDED BY ECONOMIC THEORY, AND UTILISING RELEVANT DATA AND THE APPROPRIATE ANALYTICAL REQUIREMENT, i.e., SKILLS AND TOOLS.
Economic modeling can be done either at the macro- level that involves modeling an aspect for a larger aggregate, such as models for a whole country or region, or they could also be done at the micro- level that involves modeling a particular aspect of interest relevant to the analysts.
Today, economic modeling has evolved and has found a significant part in decision making, both in the public and private sectors, academia and even in international organizations. Ministries, Central Banks, parastatals, Research organizations, University departments, international organizations such as the IMF, African Development Bank, the World Bank and many other institutions are using models in making decisions.
For this reason, computers have become essential for economic modeling. Various computer software have been developed in this regard, for commercial purposes, including EVIEWS, STATA, SPSS, PCGIVE, LINDO, LIMDEP, LISREL, PASCAL, SHAZAM, MINITAB, GAMS, DEA, GRETL, among many others. However, some software are specialized for particular modeling exercises only, while others are specialized for simulation. Computers will remain an invaluable part to the applied econometrician or modeler, both in their training and professional work.
Economic modeling and computer simulation is therefore at the heart of empirical economics and research, and is rapidly expanding field of study.
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