Introduction to Econometrics

Introduction to Econometrics

What Is Econometrics? Literally interpreted, econometrics means “economic measurement.” Econometrics is based upon the development of statistical methods for estimating economic relationships, testing economic theories, and evaluating and implementing government and business policy. The most common application of econometrics is the forecasting of such important macroeconomic variables as interest rates, inflation rates, and gross domestic product. Econometrics is concerned with the empirical determination of economic laws.

WHY A SEPARATE DISCIPLINE? Econometrics gives empirical content to most economic theory. Econometrics is mainly interested in the empirical verification of economic theory.

As Spanos correctly observes:

In econometrics the modeler is often faced with observational as opposed to experimental data. This has two important implications for empirical modeling in econometrics.

First, the modeler is required to master very different skills than those needed for analyzing experimental data. . . .

Second, the separation of the data collector and the data analyst requires the modeler to familiarize himself/herself thoroughly with the nature and structure of data in question.