This textbook makes learning the basic principles of econometrics easy for all undergraduate and graduate students of economics. It specifically caters to the syllabus of the Introductory Econometrics course taught in the third year of the Bachelor of Economics program in many universities.

It takes the readers step-by-step from introduction to understanding, first introducing the basic statistical tools like concepts of probability, statistical distributions, and hypothesis tests, and then going on to explain the two variable linear regression models along with certain additional tools like use of dummy variables, various data transformations amongst others.

The most innovative feature of this textbook is that it familiarizes students with the role of R, which is a flexible and popular programming language. With its help, the student will be able to implement a linear regression model and deal with the associated problems with substantial confidence.

Jointly Distributed Random Variables

Jointly distributed random variables

Introduction

In this chapter, we will study random variables that are jointly distributed. For example, we might be interested in studying the relationship between family incomes and savings by households. We might want to ask questions like ‘What is the average savings for households that have an income of Rs 10,000 per month?’ ‘What is the overall relationship between average savings and household income?’ ‘What is the variance of savings for households earning Rs 7,500 per month? Is it greater than that for households earning Rs 150,000 per month?’ Answering such questions will presume an understanding of the joint probability distribution of income and savings. In general, instead of thinking of savings or income as individual random variables taking ...

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