Overview
Econometrics refers to the set of mathematical tools, typically statistical, that is used to model and measure the economy. When building economic models, the first step is typically to propose a mathematical model which captures some process or feature in the economy. For most models, there will be parameters in the model which are left unspecified. Econometrics provides the tools (most commonly, OLS Regression) to measure those parameters from economic data.
Purposes
- Explanation - one of the reasons to do an economic model is to be able to explain why the economy is functioning the way it is. It demonstrates the relationships and factors affecting the current situation, and may suggest ways to change it.
- Forecasting -
Types
- Econometric Models
- Time Series - are data that represents snapshots of a process across a series of time.
- Panel Data - panel data represents data taken from multiple individual data elements at fixed time periods. Each time period contains its own dataset and represents a slice of the data.