Econometrics Methods

Econometrics is referred to as the use of statistical methods in interpreting economic data. Since statistical methods are usually developed based on controlled experiments, they cannot be directly applicable into the economic phenomenon. However, econometrics adapts these statistical methods by incorporating them into real world research; resulting to econometrics methods. This adopted form of these methods is, therefore, appropriate for application by economist and in stochastic relationships of economic data. The application of econometrics by the economists aims at using large volumes of data to come up with simple links that fit into the actual economic phenomena. A Polish economist first deduced this discipline of economics by the name Ragnar Frisch in 1910.

The multiple linear regression models are the main tool applied in econometrics. The development of econometric methods involves integrating mathematical statistics and statistical theory. The use of estimators is the basis for the econometricians. These estimators must possess statistical properties to ensure accurate determinations. These statistical properties include consistency, unbiasedness, and efficiency.

Types of Econometrics

Econometrics aims at the formulation of models, testing, and estimation of these models and use of these models. Econometrics is divided into two branches; applied econometrics and theoretical econometrics. Applied econometrics involves the use of econometrics theory concepts and applying them in the development of models, analyzing the economic history, assessment of economic theories as well as forecasting. These may include; demand and supply, portfolio theory and unemployment. Theoretical econometrics, on the other hand, comprises of methods, devising new ones as well as their properties.