Free Essay

Economics

In: Other Topics

Submitted By freida06
Words 736
Pages 3
What is Econometrics?
Econometrics is a rapidly developing branch of economics which, broadly speaking, aims to give empirical content to economic relations. The term ‘econometrics’ appears to have been first used by Pawel Ciompa as early as 1910; although it is Ragnar Frisch, one of the founders of the Econometric Society, who should be given the credit for coining the term, and for establishing it as a subject in the sense in which it is known today (see Frisch, 1936, p. 95). Econometrics can be defined generally as ‘the application of mathematics and statistical methods to the analysis of economic data’, or more precisely in the words of Samuelson, Koopmans and Stone (1954),
... as the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference (p. 142).
Other similar descriptions of what econometrics entails can be found in the preface or the introduction to most texts in econometrics. Malinvaud (1966), for example, interprets econometrics broadly to include ‘every application of mathematics or of statistical methods to the study of economic phenomena’. Christ (1966) takes the objective of econometrics to be ‘the production of quantitative economic statements that either explain the behaviour of variables we have already seen, or forecast (i.e. predict) behaviour that we have not yet seen, or both’. Chow (1983) in a more recent textbook succinctly defines econometrics ‘as the art and science of using statistical methods for the measurement of economic relations’.
By emphasizing the quantitative aspects of economic problems, econometrics calls for a ‘unification’ of measurement and theory in economics. Theory without measurement, being primarily a branch of logic, can only have limited relevance for the analysis of actual economic problems. While measurement without theory, being devoid of a framework necessary for the interpretation of the statistical observations, is unlikely to result in a satisfactory explanation of the way economic forces interact with each other. Neither ‘theory’ nor ‘measurement’ on their own is sufficient to further our understanding of economic phenomena. Frisch was fully aware of the importance of such a unification for the future development of economics as a whole, and it is the recognition of this fact that lies at the heart of econometrics. This view of econometrics is expounded most eloquently by Frisch (1933a) in his editorial statement and is worth quoting in full:
... econometrics is by no means the same as economic statistics. Nor is it identical with what we call general economic theory, although a considerable portion of this theory has a definitely quantitative character. Nor should econometrics be taken as synonymous with the application of mathematics to economics. Experience has shown that each of these three view-points, that of statistics, economic theory, and mathematics, is a necessary, but not by itself a sufficient, condition for a real understanding of the quantitative relations in modern economic life. It is the unification of all three that is powerful. And it is this unification that constitutes econometrics. This unification is more necessary today than at any previous stage in economics. Statistical information is currently accumulating at an unprecedented rate. But no amount of statistical information, however complete and exact, can by itself explain economic phenomena. If we are not to get lost in the overwhelming, bewildering mass of statistical data that are now becoming available, we need the guidance and help of a powerful theoretical framework. Without this no significant interpretation and coordination of our observations will be possible. The theoretical structure that shall help us out in this situation must, however, be more precise, more realistic, and, in many respects, more complex, than any heretofore available. Theory, in formulating its abstract quantitative nations, must be inspired to a larger extent by the technique of observation. And fresh statistical and other factual studies must be the healthy element of disturbance that constantly threatens and disquiets the theorist and prevents him from coming to rest on some inherited, obsolete set of assumptions. This mutual penetration of quantitative economic theory and statistical observation is the essence of econometrics (p. 2).
Whether other founding members of the Econometric Society shared Frisch’s viewpoint with the same degree of conviction is, however, debatable, and even today there are no doubt economists who regard such a viewpoint as either ill-conceived or impractical. Nevertheless, in this survey I shall follow Frisch and consider the evolution of econometrics from the unification viewpoint.

Similar Documents

Premium Essay

Economics

...In Search of Prosperity: Analytic Narratives on Economic Growth. Princeton: Princeton University Press. Link or search on google. Estrin, S., Hanousek, J., Kočenda, E., Svejnar, J., 2009. Effects of Privatization and Ownership in Transition Economies. Journal of Economic Literature, 47(3) 699-728. Use the UCL Economic...

Words: 1359 - Pages: 6

Free Essay

Economics

...Entrepreneurs combine economic resources with creative and innovative solutions to produce a good or service, they usually assume all the risk. All of these economic resources relate to scarcity in the sense that they are limited. We only have so much land, workforce, and capital available to us. We are forced to make decisions about how we allocate our resources and what goods or services we will...

Words: 657 - Pages: 3

Premium Essay

Economic

...| |But with this economics approach, planners can not only smooth their clients’ living standards, but also raise them. For example, they can | |determine precisely by how much living standards will rise if their clients wait to take Social...

Words: 6625 - Pages: 27

Premium Essay

Economics

...Why is scarcity central to the study of economics? Question 3 Refer to Q1.10 Chapter 1 (Page 79). In a paper written by Bentley College economists Patricia M. Flynn and Micheal A. Quinn, the authros state: “We find evidence that Economics is a good choice of major for those aspiring to become a CEO (Chief Executive Officer). When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming and S&P 500 CEO than any other major.” A list of famous Economics majors published by Marletta College inculdes business leaders Warren Buffet, Donald Trump, Ted Turner, Diane von Furstenberg, and Sam Walton, as well as former Presidents George H.W. Bush, Gerald Ford and Ronald Reagan. Why might studying economics be particularly good preparation for being that top manager of a corporation or a leader in government? Based on Patricia M. Flynn and Michael A. Quinn. “Economics: A Good Choice of Majorfor Future CEOs,” Social Science Research Network, November 28, 2006, and Famous Economics Majors, Marletta College, Marletta, Ohio, May 2, 2010. Question 4 For the sake of argument, let’s assume that you would never cheat. Under what circumstances are students in general more or less likely to cheat on an economics examination? Question 5 Refer to Q1.6 of Chapter 1 (Page 78). Jay Bhattacharya and M....

Words: 703 - Pages: 3

Premium Essay

Economics

...The main objective of this exercise is to get students thinking analytically and creatively about the two-edged nature of many economic phenomena so as to present a “balanced” perspective based on economics principles, theories and concepts against the backdrop of conceptual and analytical thinking. Visit the web sites or similar ones containing national economic data. National Economic Accounts at the Bureau of Labor Statistics at http://www.bea.gov , Bureau of Labor Statistics at http://www.bls.gov/data/, The Conference Board at http://www.conference-board.org/economics/indicators.cfm, US Census Bureau at http://www.census.gov/mtis/www/mtis_current.html, National Bureau of Economic Research at http://www.nber.org/releases/, The Federal Reserve at http://www.federalreserve.gov/releases/h15/update/ Review the most recent 8 – 12 months of data on real GDP growth, inflation/CPI, unemployment, Interest rates, consumer confidence index, consumer sentiment index, inventory level, and other relevant economic data. Based on the collected data, analyze the current macroeconomic situation and its impact on any two(2) Monopolistically competitive firms of your choice. Explore in particular how the two companies’ respond to the macroeconomic conditions in terms of their: • stock performance, • current and future sales revenue, • current and future profits, • labor costs, and • hiring decisions....

Words: 377 - Pages: 2

Premium Essay

Economics

...Economics in the current news BUS 640: Managerial Economics Professor Kunsoo Choi June 17, 2013 Economics in the current news Economic theory is a framework for understanding how the U.S. economy works. One economic theory, classic economic theory can be defined by command economies driven by national governments. Communism and socialism are two terms associated with these economies. Majority of the economic resources are controlled by the government as one of the main ideas behind these theories. This is such the case when reading the article, Secure enough. This article talks about the government spending billions of dollars to protect the US border. The questions whether the border is truly secure even when the government is constantly spending an enormous amount of money to protect the border. To increase the safety and protection of the border, the government has increased the amount of drones that patrol the skies as well as border patrol agents. When looking at the other aspects of the economy, it can be argued that these funds can be used in other areas. According to the Migration Policy Institute, a think-tank, border enforcement costs $18 billion a year, more than all other federal criminal-law-enforcement agencies combined. With the budgets issues that are being experienced today, the border control is more of an economic issue now instead of enforcement issue....

Words: 418 - Pages: 2

Premium Essay

Economics

...Introduction By definition economics is “a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.” And as with other types of sciences, economics contains many beliefs and theories that may be difficult to understand, yet are essential in the “day to day” decision making for many people. But also like other sciences, economics has evolved into what it is today. And it will continue to evolve as the practitioners of the science debate, test and discover better and more efficient way to “analyze the data.” Perhaps more than any other time in our nation’s history, people have personally seen the effects of economics. One of the most visible areas seen in the market place today is the economics of unemployment. Unemployment is currently 8.2% as measured by the United States Bureau of Statistics. I believe that most people are familiar with the term “Unemployment Rate”, but I imagine that only a handful understand the significance of what this “number” is telling us. Economics is similar to mathematics, physics and chemistry in the sense that all disciplines require thought, equations, observations and experiments to be performed in order to get an “observable” end result. And from that result we make conclusion about the very thing we are testing. So it is with unemployment; a “mathematical equation” that has the possibility of helping us understand the underlying causes of the problem....

Words: 2855 - Pages: 12

Premium Essay

Economics

...To what extent are the development aspirations of poor nations helped or hindered by the economic activities of rich nations? By what process and under what conditions do rural subsistence farmers in the remote regions of Nigeria, Brazil, or the Philippines evolve into successful commercial farmers? These and many other questions concerning international and national differences in standards of living, in areas including health and nutrition, education, employment, environmental sustainability, population growth, and life expectancies, might be posed on the basis of even this very superficial look at life around the world. This book is designed to help students obtain a better understanding of the major problems and prospects for economic development by focusing specifically on the plight of the half or more of the world’s population for whom low levels of living are a fact of life. However, as we...

Words: 480 - Pages: 2

Premium Essay

Economics

...COURSE OUTLINE & CLASSROOM MANAGEMENT PLAN Course Description: This course covers both Macro and Micro Economic principles and is aligned with the California State Standards for Social Science in Economics. It is designed to provide a basic understanding of the core concepts, ideas, and theories relevant to the study of Economics as a social science in today’s world. Although many of the topics we cover will be new to many students, it is my goal to relate them to both the life of a teenager about to embark on his or her own economic odyssey and the larger issues filling up space on the pages of our newspapers and the screens of our computers. Whether you like it (or even know it) or not, we are all subject to the economic system we live in and its ever-changing conditions. We are all economic actors! Course Topics: 1. What is Economics? What are the basic ideas, questions, and vocabulary underlying the study of economics as a social science? 2. Economic Systems How do society’s decide what to make, how to make it, and who gets what is made? 3. Supply and Demand How are prices, the language consumers and producers use to communicate, determined in a free market system? 4. Labor Unions What do they do, what are their pros and cons, what is their history, and their current status? 5....

Words: 1394 - Pages: 6

Premium Essay

Economics

...Title: Economics Name: Professor’s name: Course title: Date: Economics Suggest how an economist would approach the problem of alcohol abuse. Provide two (2) possible solutions to this problem. Include the four (4) elements of the economic way of thinking in your analysis. It is a genuine case of negative externalities both in production and consumption. Alcohol production also causes pollution of the environment especially due to the large CO2 emissions produced by factories and some of the byproducts. Two possible solutions to these problems proposed by economists are: • Coase theorem. Negotiating for compensation with no any government intervention on condition that the cost of negotiation is not high and the property rights are secured. • Pigouvian regulations or taxes: Drunk driving is incorporated. An economist would raise cost through reduced availability and added taxes Analyze how prescription drugs affect the demand and supply of other products and services in this country. According to Garrod and Willis (2007), in economics, the law of supply and demand is regard as one of the fundamental principles running an economy. It is illustrated as the situation where as supply raises the price will likely drop or vice versa. As demand raises the price will likely increase or vice versa....

Words: 1345 - Pages: 6

Free Essay

Economics

...Intro to Economic Thought (ECO 105) Robert Ellmann Financial Crises Irina Sterpu __________________________________________________________________________________ OUTLINE           Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions....

Words: 2177 - Pages: 9

Premium Essay

Economics

...Adam Smith is the father of economics and the writer of the book "Wealth of Nations". Groups of people with high security numbers bid highest for the bottle of wine because they were influenced by these high numbers. People who had watched a sad movie bid higher because of the emotional influence of the movie and this suggests that human behaviour influences our actions. A spectacular bubble is a phenomenon that explains the rise in house prices when prices of a financial asset suddenly takes off and keeps rising. Tulip bubbles are bubbles that came up as a result of rises in the prices of this was irrational because after the prices rose, they started falling after this. The housing bubble refers to the rise of housing costs and it collapsed because the cost of mortgage suddenly started reducing ("NOVA Mind Over...

Words: 518 - Pages: 3

Premium Essay

Economics

...Free Essays Home Search Essays FAQ Contact Search: Related Essays - Economics of Information - Introduction There have been discussions among scholars in developed countries regarding economics of information. Developed countries includes Australia, New Zealand, United States, Ireland, Germany...[ view ] - Economics and Growth - The demand curve is likely to change upwards or rise as a result of changes in a number of factors. One, if there is a move up in the price of an alternative commodity, or decrease in price of the giv...[ view ] Classical Economics vs. Keynesian Economics :: 5 Works Cited Length: 1187 words (3.4 double-spaced pages) Rating: Red (FREE) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - My research of Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theories, I will then compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian Economics is what is best for America. Classical Economics is a theory that suggests by leaving the free market alone without human intervention; equilibrium will be obtained....

Words: 1342 - Pages: 6

Premium Essay

Economics

...The trade deficit or surplus refers to the difference between the country trade account where the imports and exports of the country are included in the account, A trade deficit, which is also referred to as net export is an economic condition that occurs when a country is importing more goods than it is exporting. The deficit equals the value of goods being imported minus the value of goods being exported, and it is given in the currency of the country in question. (Anon., n.d.) And the trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. A trade surplus represents a net inflow of domestic currency from foreign markets. (Anon., n.d.) Which is better for a country a trade deficit or a trade surplus? Whether the country is experience the surplus or deficit it depends on what the country wants to purse, whether they want to sustain the economic growth or other economic activities. Trade Deficit is bad if it’s not sustainable Imports are greater than exports, leads to depreciation of a currency, which in turn may result in improved trade performance. Outline the conditions that would be possible Trade deficit takes place when the country exports to other country is less than its imports, this is as the results that the currency has...

Words: 250 - Pages: 1

Premium Essay

Economics

...Economics Human beings are an ever changing species when it comes to what they desire and how they attempt to acquire those desires. Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society (Colander, 2010 pg. 4). This is a broad study that encompasses entire cultures. Businesses are burdened to answer three basic questions when they decide to enter into the markets. The first question is what to produce and how much of it to produce. The second is how to produce the product. Finally, for whom should the product be produced? These are fundamental questions that establish the foundation of the product market. To further narrow the down the study to individual preferences the term microeconomics is used. Microeconomics is defined as the study of individual choice, and how that choice is influenced by economic forces (Colander, 2010 pg. 15). The reason microeconomics is studied is companies can determine how individuals desire to make purchases. By studying individual’s spending habits allows businesses to determine what products the consumers are wanting. Companies do not want to produce goods that have little to no market value. The basic economic structure includes two elemental laws. The law of supply and the law of demand. Without these two elements economics would have no meaning....

Words: 837 - Pages: 4