Question

using examples from economic literature briefly explain how the following econometric models are applied in empirical work. Justify why each model is suitable for the selected area.

a) probit model

b) Logit model

c) cross section model

d) time series model

Answer 1

Answer (a) : Probit model is an econometric model of empirical study which focuses on the regressive nature of the variable which is dependent and explains that there can be only two outcomes that the variable can take up or assume. The outcome will be in the two extremes of the regression. This model is suitable where the statistical data concurring to two extremes of a data. For example, if we want to calculate a statistical data where against a particular field, we have the option to select whether an individual is dead or alive. Here, an individual can either be dead or alive. Here, no other value for this field can be regressed. Therefore , in such situations, Probit model is the most suitably applied theory.

Answer (b) : Logit model or Logistic model is another econometric model of empirical study which focuses on the binary base of two values 0 and 1 to be the concentric fixture of a regression analysis. Here, the outcome will be in the two of the values, i.e. both the values 0 or 1 can take up the regression factor probe and fix the variable. This model is suitable where the statistical data concurring to two values of a data are coinciding and we the regression is to be done on the basis of two figures

Answer (c) : Cross Selection model is such a unique and wide used econometric model of empirical study which focuses on the regressive nature of the variable which from a particular period of time and gives data referring to the time period that they refer to. Here, the outcome of the regression model exemplifies the data pertaining to the period in which the data has been recorded and helps the overall regression study. This model is suitable where the statistical data concurring to older period of time is to be used in a recent study and the data must be authentic and regressive. For example, if we want to calculate a statistical data where against a particular field, we need to know if an individual pertained to particular category, then the cross-section model provides the necessary date pertaining to the time period.

Answer (d) : Time series model is the most used and authentic econometric model of empirical study which takes in to consideration the existing data available and forecasts the predictive value of a data so that it can be used in to regression models to calculate may future outcomes and future values for other economic policies and outcomes. Here, the outcome of the time series regression model exemplifies the data pertaining to future use and data prediction of the empirical study. This model is suitable where the statistical data concurring to future use is required. For example, if we want to calculate the effect of any economic policy or a financial decision taken by the Government, the time series model provides immense help and authenticity in the correct estimation of the values that the statistical model is applied to figure out.