Here is a list of definitions provided by economists:
Econometrics is a set of quantitative techniques that are useful for making ``economic decisions``.
Econometrics is the application of statistical methods to economic data;
Econometrics is the study of economic theory in its relationship to statistics and mathematics.
Econometrics is the application of statistical and mathematical methods in the field of economics to test and quantify:
Economic theories; and
The solutions to economic problems.
Now that you have a reasonable understanding of the different definitions provided by economists, let’s look at how you can use econometrics, as well as, understand the econometric modeling tools used by economists; and the economic theory, and techniques that economists use to evaluate and develop future developments.
The Use of Econometrics?
Econometrics is used by economists to study specific quantitative regularities and interrelationships of economic objects and processes by means of mathematical and statistical techniques and models.
What is Econometric Modeling?
Econometric modeling is simply an economic model. Econometric modeling is a forecasting technique that uses computer processed mathematical equations (that are based on historical data and certain assumptions) to predict economic conditions. The models used in econometrics yield numeric results that are based on the following types of data:
- Statistical data;
- Forecasting data; and
Econometric Modeling Tools
Econometrics uses a set of statistical modeling tools that allow economists to test hypotheses using real world data, with the basic statistical tool used by economists being the multiple linear regression model. In linear regression the relationships are modeled using linear predictor functions and this in turn, enables unknown model parameters to be estimated from the data.
Econometric Theory and Techniques
Put simply, econometric theory uses two types of statistics to evaluate and develop econometric methods. These include statistical theory and mathematical statistics.
- Statistical theory provides a basis for the whole range of techniques being used within applications of statistics such as in data analysis and study design.
- Mathematical statistics is the application of mathematics to statistics.
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