Premium Essay

Basic Econometrics Tools

In: Business and Management

Submitted By sonnysan
Words 1203
Pages 5
Basic Econometrics Tools
Correlation and Regression Analysis
Christopher Grigoriou

Executive MBA – HEC Lausanne
2007/2008
1

A collector of antique grandfather clocks wants to know if the price received for the clocks increases linearly with the age of the clocks.
The following model: yi=a0 + a1*x1i + εi , where yi=Auction price of the clock i, x1i=Age of clock (years),
A sample of 32 auction prices of grandfather clocks, along with their age, is given in the next table.
Table 1- Auction price and Age i 1
2
3
4
5
6
7
8
9
10
11
12

Auction
Price, y
1235
1080
845
1522
1047
1979
1822
1253
1297
946
1713
1024

Age, x1 127
115
127
150
156
182
156
132
137
113
137
117

i
13
14
15
16
17
18
19
20
21
22
23
24

Auction
Price, y
1147
1092
1152
1336
2131
1550
1884
2041
845
1483
1055
1545

Age, x1 137
153
117
126
170
182
162
184
143
159
108
175

i
25
26
27
28
29
30
31
32

Auction
Price, y
729
1792
1175
1593
785
744
1356
1262

Age, x1 108
179
111
187
111
115
194
168

2

Correlation analysis (see Appendix 1)

Figure 1- Scatter Plot- Auction Price and Age
2590

Auction Price, y

2 09 0

1 590

1 09 0

590

90
1 00

125

150

175

2 00

Age, x1

From this figure => positive correlation between Auction price and Age?

3

=> Correlation coefficient

Outil/Utilitaire d'Analyse/ Analyse de correlation/plages d’entrée/de sortie/ok
-1 ≤ rx,y ≤ +1 rx,y ≤ 0 => negative correlation ; rx,y ≥ 0 => positive correlation rx,y = 0 => no linear correlation rx,y = ± 1 => perfect correlation
The relationship we consider is LINEAR!
Correlation does not mean causality


Spurious correlation (e.g.: population in Egypte and Economic growth in China)



Reversal causality
4

One step further : the simple regression...

Similar Documents

Free Essay

7 Quality Control Tools

...Seven Quality Control Tools 1        1. 2. 3. 4. 5. 6. 7. Pareto analysis Flowcharts Check sheets Histograms Scatter diagrams Control charts Fishbone diagram 2  Vilfredo Pareto was an Italian economist who noted that approximately 80% of wealth was owned by only 20% of the population. This was true in almost all the societies he studied. 3 1. Pareto analysis      Choosing the Most Important Changes to Make Pareto analysis is a very simple technique that helps you to choose the most effective changes to make. It uses the Pareto principle - the idea that by doing 20% of work you can generate 80% of the advantage of doing the entire job. Pareto analysis is a formal technique for finding the changes that will give the biggest benefits. It is useful where many possible courses of action are competing for your attention. 4   It is a statistical technique in decision making that is used for selection of a limited number of tasks that produce significant overall effect. It uses the Pareto principle - the idea that by doing 20% of work you can generate 80% of the advantage of doing the entire job. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%). 5    Pareto analysis is a formal technique useful where many possible courses of action are competing for your attention. Basically, it consists of estimating the benefit delivered by each......

Words: 1812 - Pages: 8

Free Essay

Dr.Kaure Ishikawa

...Ishikawa's Message Ishikawa's biggest contribution is in simplifying statistical techniques for quality control in industry. At the simplest technical level, his work has emphasised good data collection and presentation, the use of Pareto Diagrams to prioritise quality improvements and Ishikawa Diagrams. Ishikawa sees the Cause-and-Effect Diagram (or Ishikawa Diagram), like other tools, as a device to assist groups or quality circles in quality improvement. As such, he emphasises open group communication as critical to the construction of the diagrams. Ishikawa diagrams are useful as systematic tools for finding, sorting out and documenting the causes of variation of quality in production and organising mutual relationships between them. Other techniques Ishikawa has emphasised include the seven Quality Control tools. Other than technical contributions to quality, Ishikawa is associated with the Company-wide Quality Control (CWQC) Movement that started in Japan during the period 1955--60 following the visits of Deming and Juran. Ishikawa sees the CWQC as implying that quality does not only mean the quality of product, but also of after sales service, quality of management, the company itself and the human life. The outcomes of such an approach are: 1. Product quality is improved and becomes uniform. Defects are reduced. 2. Reliability of goods is improved. 3. Cost is reduced. 4. Quantity of production is increased, and it becomes possible to make rational......

Words: 309 - Pages: 2

Free Essay

Ishikawa Research Paper

...Ishikawa Research Paper Table of Contents Introduction 1 Background 1 Ishikawa Philosophy 1 Conclusion 3 Works Cited 4 Introduction This paper is geared towards outlining the primary Total Quality Management principles promoted by Kaoru Ishikawa. Most of these TQM strategies are aimed at improving the quality management process in the modern (post World War II) workplace. This paper will highlight the contributions and the positive impact that Kaoru Ishikawa made on the Japanese quality movement and towards the overall TQM process. Background Born in 1915, Ishikawa was raised in Tokyo, Japan where he later when on to attend the University of Tokyo in the 1930’s and after a brief stint in the Japanese Navy, he became a Professor of Engineering at that same university in the late 1940’s. By the early 1960’s, he held an executive position at the Union of Japanese Scientists and Engineers (JUSE). During his lifetime Ishikawa received various awards and wrote numerous articles and over 30 books. However his two most significant literary works are: “Guide to Quality Control” which was released in 1976. And his second and most notable book “What is Quality Control: The Japanese Way” was released in 1985. Ishikawa continued his contributions to the Total Quality Management philosophy until his death in 1989. Ishikawa Philosophy “Throughout......

Words: 841 - Pages: 4

Free Essay

Alina Boatright

...developed the focus for the western quality effort. Dr. Ishikawa Kaoru with his astonishing education and his passion for quality, helped to fulfill this necessity. Dr. Ishikawa was a Japanese advisor, father of the scientific analysis would discover the origins of complications in the industrial method. The Fishbone Diagram or “Ishikawa Diagram” among other basic quality tools were models of his great contributions to quality control. They assisted companies in recognizing many reasons of persistent quality difficulties and also fashioned a structure for brainstorming the best resolutions to those issues. Ishikawa’s Biography and Primary Works A proficient in quality control, educated in a family with long industrial institution, Ishikawa Kaoru was born in Tokyo 1915. He graduated in 1939 from the Engineering Department of Tokyo University majoring in applied chemistry. He was an Assistance Professor at that same University in 1947. Dr. Ishikawa Kaoru linked up with the “Quality Circles Research Group at the Union of Japanese Scientists and Engineers (JUSE)” in 1949 and aided the assemblage in developing and delivering the first basic quality control instructional course. Dr. Ishikawa was one of the most renowned innovators of the Quality Cycle movement in Japan in the early 1960s. No doubt, his exceptional hard work in his profession lead him to gain his Doctorate of Engineering which then encouraged him to become a Professor. In 1978, he became president of the Musashi......

Words: 866 - Pages: 4

Premium Essay

Continuous Improvement

...reduce stock loss. We would appreciate any feedback if you choose to implement any of the solutions put forward in the report. Once again thank you for your dedication and hard work, it has been a pleasure to work with someone so enthusiastic and has made the whole project an enjoyable experience. If there is any further information you require please do not hesitate to contact us. Yours Sincerely, Michael, Peter, Geoff & Laura. 2 Business Description Summary: The business consists of the original bottle shop which has a drive-thru facility and a recently opened a larger premises located in the same suburb. The original bottle shop is now concentrating on the sale of the more popular products such as Australian beer and basic spirits through the drive-thru and the new bottle shop is marketing a more boutique range of foreign beers and spirits as well as a large selection of wine. The business is experiencing a stock loss problem and would welcome any solutions. Name of Business: ‘Murphy’s Cellars’ Type of...

Words: 2264 - Pages: 10

Free Essay

Qc Tools

...THE 7 QC TOOLS 1 Introduction The 7 QC Tools are simple statistical tools used for problem solving. These tools were either developed in Japan or introduced to Japan by the Quality Gurus such as Deming and Juran. In terms of importance, these are the most useful. Kaoru Ishikawa has stated that these 7 tools can be used to solve 95 percent of all problems. These tools have been the foundation of Japan's astomishing industrial resurgence after the second world war. The following are the 7 QC Tools : 1. Pareto Diagram 2. Cause & Effect Diagram 3. Histogram 4. Control Charts 5. Scatter Diagrams 6. Graphs 7. Check Sheets 2 Pareto Diagram Pareto Diagram is a tool that arranges items in the order of the magnitude of their contribution, thereby identifying a few items exerting maximum influence. This tool is used in SPC and quality improvement for prioritising projects for improvement, prioritising setting up of corrective action teams to solve problems, identifying products on which most complaints are received, identifying the nature of complaints occurring most often, identifying most frequent causes for rejections or for other similar purposes. The origin of the tool lies in the observation by an Italian economist Vilfredo Pareto that a large portion of wealth was in the hands of a few people. He observed that such distribution pattern was common in most fields. Pareto principle also known as the 80/20 rule is used in the field of materials management for ABC......

Words: 2790 - Pages: 12

Free Essay

7 Basic Tools in Quality

...Introduction ………………………………………….………………………… 2 2.0 The Development of 7 Basic Tools…………………………………………….. 3 3.0 Data Figures ………………………………………..…………………… 3 4.0 Histogram ..………………...…………………………………………………… 5 5.0 Process Control Chart ..………………………….…………………………… 5 6.0 Patero Analysis …………………………………………………………….. 8 7.0 Cause and Effect Diagram ……..………………..……………….……….……. 9 8.0 Trend Analysis ……………………………………………………………………11 9.0 Scatter Diagram…...……………………………………………..………………. 13 10.0 Conclusion…….…………………………………………………………..……... 15 THE SEVEN BASIC QUALITY TOOLS Project Risk, Procurement and Integration Management 1. INTRODUCTION The last two decades have been a period of tremendous turmoil and change in the business environment. Competition in many industries has become worldwide in scope, and the pace of innovation in products and services has accelerated. These changes in business environment have resulted in organisations attempting to transform themselves to become more competitive. Since the early 1980s, many companies have gone through several waves of improvement programs, starting with Just-In-Time (JIT), then moving on to Total Quality Management (TQM), Lean Production, Six Sigma and many other various management programs. Implementing these programmes would require tools for data collection, measure and monitor. There are seven quality control tools which are: * Data figures * Pareto analysis ......

Words: 3093 - Pages: 13

Free Essay

Seven Tools of Quality

...Cause & effect One of the seven tools of quality, it shows the relationship of all factors (causes) that lead to the given situation (effect). It identifies major causes and breaks them down into sub-causes and further sub-divisions (if any). It is usually preceded by cause-and-effect analysis. Also called fishbone diagram (because of its resemblance to a fish skeleton) or Ishikawa diagram, after its inventor Dr. Kaoru Ishikawa (1915-89) of Tokyo's Mushasi Institute. flow chart a diagram of the sequence of movements or actions of people or things involved in a complex system or activity. Check sheets The check sheet is a form (document) used to collect data in real time at the location where the data is generated. The data it captures can be quantitative or qualitative. When the information is quantitative, thecheck sheet is sometimes called a tally sheet. Histogram a diagram consisting of rectangles whose area is proportional to the frequency of a variable and whose width is equal to the class interval. Pareto charts A Pareto chart, named after Vilfredo Pareto, is a type of chart that contains both bars and a line graph, where individual values are represented in descending order by bars, and the cumulative total is represented by the line. Control charts The control chart is a graph used to study how a process changes over time. Data are plotted in time order. A control chart always has a central line for the average, an upper line for the upper control...

Words: 296 - Pages: 2

Premium Essay

Abc Hospital

...understanding about this. But today, Quality tools understanding and importance has grown among people and organizations. There are many tools that are used among the organizations that are classified as follows: 1. Cause Analysis Tools: includes Fishbone, Pareto, and Scattered Diagram. 2. Evaluation and Decision Making Tool: Decision Matrix, Multivoting. 3. Process Analysis Tool: includes Flow chart, Failure Mode Effects Analysis, Mistake-proofing and Spaghetti Diagram. 4. Data Collection and Analysis Tools: box and whisker plot, check sheet, control chart, Design of experiments, Histogram, Scatter Diagram, Stratification, and Survey. 5. Idea Creation Tools: Affinity Diagram, Benchmarking, Brainstorming, Nominal Group Technique. 6. Project Planning and Implementation Tool: Gantt Chart, Plan-Do-Check-Act (PDCA) Cycle or Plan-Do-Study-Act (PDSA) Cycle. 7. Seven New Management and Planning Tools: Affinity Diagram, Relations Diagram, Tree Diagram, Matrix Diagram, Matrix Data Analysis, Arrow Diagram, Process Decision Program Chart. Quality tools & techniques use statistical knowledge to accumulate data and analyze them. It serves diverse range of medical, computing, industrial, telecommunications and defense. These tools drive improvement throughout the organization. Employee has to at all levels has to master the fundamental Quality skills and advanced Quality tools. This is critical to improve the organization process. These tools helps to improve company’s......

Words: 3917 - Pages: 16

Free Essay

Hcs/451 Worksheet

...University of Phoenix Material Tools and Decision Making for Ongoing Performance Management Scenario Worksheet As a group, select one scenario that is most applicable to your chosen organization type and complete the worksheet. This worksheet will provide the foundation for completing the Tools and Decision Making for Ongoing Performance Management Presentation. Scenarios • ABC organization has noticed an increase in patients who have acquired infections while receiving care and service. In fact, there seems to be so many different types of infections that the organization does not know where to start. With your guidance, the organization will be able to identify infections and the number of infections per category throughout the facility to determine the vital few and focus their efforts on the few areas that will bring about the greatest return on investment of time and effort. The organization needs to identify which infections affect the most patients. Which tools would you use to make this decision? • DEF organization has received complaints from patients regarding the delays they experienced when checking in for care or service at the front desk to the time they are called to receive their services. The patients commonly described the issues they experienced as a bottleneck. The organization has determined that the admission process needs to be reviewed and suggestions need to be made on ways to streamline the process to more efficiently manage the......

Words: 786 - Pages: 4

Free Essay

Quality Management

...Unit 1 Quality Manageent MT435-02 -Operations Management Professor: Jason Jackson Magida Taracena 8/2/2014 A business may manufacture goods and to meet their clients needs. It is obvious that many customers always know that some businesses make better products than others, and therefore buys accordingly to it. So, that means that the business must reflect on how the client labels the word quality. I think that quality should be meant at the requirements of the customer. From here we can take that product and service quality is highly influenced by what the client want and especially by what is willing to pay. It all depends on what their needs are, and their quality expectations. The dimensions of quality for manufactured products a consumer seem to be looking for are performance, features, reliability conformance, durability, serviceability, aesthetics, safety, and other perceptions. Performance is basically how well a product is working. Features are the additional piece added. Reliability is basically the possibility that manufactured goods will operate correctly in a projected time. Conformance is the extent to which a product meets the reestablish averages. Durability is practically how long the product will last before it has to be replaced. When it comes to serviceability they are talking about the simplicity of getting things repaired. Aesthetic is the way the product looks to end-users. Safety guarantees clients that they wont......

Words: 618 - Pages: 3

Free Essay

Scm Case

...|make check sheet and pareto diagram for this maintenance facility | |ticket number |work | | |ticket number |work | |1 |tires | | |16 |tires | |2 |Lube and oil | | |17 |lube and oil | |3 |tires | | |18 |brakes | |4 |battery | | |19 |tires | |5 |Lube and oil | | |20 |brakes | |6 |Lube and oil | | |21 |lube and oil | |7 |Lube and oil | | |22 |brakes | |8 |brakes | | |23 |transmission | |9 |Lube and oil | | |24 |brakes | |10 |tires | | |25 |lube and oil | |11 |brakes ...

Words: 385 - Pages: 2

Free Essay

Blackberry

...GUIDE TO COMPUTER MODELS 2  The Inevitability of Using Models........................................................................3 Mental and Computer Models..............................................................................2 The Importance of Purpose..................................................................................3 Two Kinds of Models: Optimization Versus Simulation and Econometrics.......4 Optimization.............................................................................................4 Limitations of Optimization..........................................................5 When To Use Optimization..........................................................8 Simulation................................................................................................9 Limitations of Simulation.............................................................11 Econometrics............................................................................................13 Limitations of Econometric...

Words: 14261 - Pages: 58

Free Essay

Mrkkkk

...These tools are widely used by local economic development (LED) practitioners: General tools to help organise and compare data: Time series analysis Growth indexes Composite indexes Benchmarking GIS mapping PEST / trends analysis Tools to help cities understand the structure of their local economy: Sector share analysis Value-added analysis Economic base analysis Location quotient Specialisation index Shift share analysis Input-output analysis Social accounting matrix Cluster mapping Value chain analysis Tools to look at local endowments: Asset mapping Tools to assess human capital: Skills audit Tools to analyse institutions: Stakeholder analysis / institutional mapping Analysing the Data Guide to Data Analysis Tools 8 This chapter discusses the tools that cities and city-regions can use to analyse data collected on their economies. All of these have been tried and tested in actual city development strategies (CDSs). A few other tools not yet widely applied in city planning environments have also been included. Time Series Analysis What Issues Are Addressed by Time Series Analysis? The following questions can be addressed by a time series analysis: How is a local economy performing over time? ● Population and other demographics (including education and labour force ● Income levels and distribution ● Employment and unemployment levels (total economy and by sector) ● Economic output and exports (total economy and by sector) Which growth patterns reflect shocks......

Words: 19740 - Pages: 79

Premium Essay

Making Decisions Based on Demand and Forecasting

...Tool 3. Demand Analysis Economic Analysis of Tobacco Demand Nick Wilkins, Ayda Yurekli, and Teh-wei Hu DRAFT USERS : PLEASE PROVIDE FEEDBACK AND COMMENTS TO Joy de Beyer ( jdebeyer@worldbank.org) and Ayda Yurekli (ayurekli@worldbank.org) World Bank, MSN G7-702 1818 H Street NW Washington DC, 20433 USA Fax : (202) 522-3234 Contents I. Introduction 1 Purpose of this Tool 1 Who Should Use this Tool 2 How to Use this Tool 2 II. Define the Objectives of the Analysis 4 The Reason for Analysis of Demand 4 The Economic Case for Demand Intervention 4 Analysis of Demand for the Policy Maker 5 Design an Analysis of Demand Study 6 Components of a Study 6 The Nature of Econometric Analysis 7 Resources Required 7 Summary 8 References and Additional Information 8 III. Conduct Background Research 9 IV. Build the Data Set 11 Choose the Variables 11 Data Availability 11 Data Types 12 Prepare the Data 13 Data Cleaning and Preliminary Examination 14 Preparing the Data Variables 14 References and......

Words: 36281 - Pages: 146