Teaching basic econometric concepts using Monte Carlo simulations in Excel

Monte Carlo experiments can be a valuable pedagogical tool for undergraduate econometrics courses. Today this tool can be used in the classroom without the need to acquire any specialized econometrics software. This paper argues that Microsoft Excel, which is already available at many office and home computer stations, offers the opportunity to run meaningful Monte Carlo simulations and to successfully teach students basic econometric concepts. The reader is guided, step-by-step, through two different exercises. The first one is a repeated sampling exercise showing that least squares estimators are unbiased. The second one expands on the first to explain the true meaning of confidence interval estimates of least squares estimators.