Browse Definitions :
Definition

econometrics

Contributor(s): Matthew Haughn

Econometrics is the analysis and testing of economic theories to verify hypotheses and improve prediction of financial trends. Econometrics takes mathematical and statistical models proposed in economic theory and tests them. First, models are tested against statistical trials, followed by testing against real-world examples to support or disprove hypotheses.

Econometrics uses an important statistical method called regression analysis, which assesses the connection among variables. Economists use the regression method since they cannot usually carry out controlled experiments, choosing to instead gather information from natural experiments. The method typically includes the following steps:

  1. Subject data is examined to attempt to understand the data set. In that examination, theories and hypotheses are formed as to why the data manifests the way it does to explain the variables being analyzed.
  2. Models and statistical tools for testing the hypothesis are selected. The relationships between this step, the explanatory variable and the dependent variable are summarized.
  3. Data is input into economic software and the selected statistical models are applied to estimate results from the supplied data.
  4. Results are collected and portions are analyzed to obtain economic predictions. If the results are as expected, the hypothesis is generally considered validated. Otherwise, new hypotheses need to be found.

Real world applications of econometrics include the study of the income effect, defined as the change in demand for a product or service resulting from a change in income.

Lawrence Klein, Simon Kuznets and Ragnar Frisch first conceived of econometrics as a field of study. All three economists received the Nobel Prize in economics for their founding work.

This was last updated in February 2018

Continue Reading About econometrics

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

Powered by:

SearchCompliance

  • California Consumer Privacy Act (CCPA)

    The California Consumer Privacy Act (CCPA) is legislation in the state of California that supports an individual's right to ...

  • compliance audit

    A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines.

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

SearchSecurity

  • spear phishing

    Spear phishing is an email spoofing attack that targets a specific organization or individual, seeking unauthorized access to ...

  • bridge

    A bridge is a class of network device that’s designed to connect networks at OSI Level 2, which is the data link layer of a ...

  • browser isolation

    Browser isolation is a cybersecurity model for web browsing that can be used to physically separate an internet user’s browsing ...

SearchHealthIT

SearchDisasterRecovery

  • disaster recovery team

    A disaster recovery team is a group of individuals focused on planning, implementing, maintaining, auditing and testing an ...

  • cloud insurance

    Cloud insurance is any type of financial or data protection obtained by a cloud service provider. 

  • business continuity software

    Business continuity software is an application or suite designed to make business continuity planning/business continuity ...

SearchStorage

  • business impact analysis (BIA)

    Business impact analysis (BIA) is a systematic process to determine and evaluate the potential effects of an interruption to ...

  • RAID (redundant array of independent disks)

    RAID (redundant array of independent disks) is a way of storing the same data in different places on multiple hard disks to ...

  • dedicated cloud

    A dedicated cloud is a single-tenant cloud infrastructure, which essentially acts as an isolated, single-tenant public cloud.

Close