What is Econometrics?

Econometrics is the use of math and statistics to measure economic data.

Econometrics Examples

Econometricians use econometrics to measure things such as gross domestic product, inflation, or to predict changes in the economy. Their models often forecast key economic measures and then compare those forecasts with actual results.

There are two kinds of econometrics: applied and theoretical. Applied econometrics tends to focus on consumer behavior and predictive models of how something will respond to specific changes in something else (for example, what plane ticket prices will be in Detroit if United Air Lines stops flying there). Theoretical econometrics uses statistical methods such as regression analyses, probability, and frequency distributions to model how well economic models work or don't work.

Why Econometrics is Important

The concept of economics is largely regarded as a social science, but it is also a mathematical science. Much of what we experience in the world can be measured: interest rates, wages, prices, rents, and changes in those things. For this reason, econometrics can help verify and predict theories on how consumers behave, what governments will do, and when things will change.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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