Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Econometrics

What it is:

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

How it works (Example):

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 it Matters:

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 theories about how consumers behave, what governments will do, and when things will change.