Question

Describe the application of Econometrics in Economics.

Answer 1

Origin Of Econometrics:

• Economists tried to support their ideas with facts and figures in ancient times.
• Irving Fisher is the first person, developed a mathematical equation in the quantity theory of money with help of data.
• Ragnar Frisch, a Norwegian economist and statistician named the integration of three subjects such that mathematics, statistical methods, and economics as Econometrics” in 1926. Ragnar Anton Kittil Frisch Noble Memorial Prize in 1969.
• The term econometrics is formed from two words of Greek origin, ‘oukovouia’ meaning economy and ‘uetpov’ meaning measure. Econometrics emerged as an independent discipline studying economic phenomena.
• Econometrics may be considered as the integration of economics, Statistics, and Mathematics.
• Econometrics is an amalgamation of three subjects that can be easily understood by following the Venn diagram and picture representation.
• Economics+Mathematics = Mathematical Economics
• Mathematical Economics+Statistical Data & Its Technique = Econometrics
• {Economics+Statistics+Mathematics}+Empirical Data = Econometrics

Definitions:

• In the words of Arthur S. Goldberger, “Econometrics may be defined as the social science in which the tools of economic theory, mathematics, and statistical inference are applied to the analysis of economic phenomena”.
• Gerhard Tinbergen points out that “Econometrics, as a result of certain outlook on the role of economics, consists of the application of mathematical statistics to economic data to lend empirical support to the models constructed by mathematical economics and to obtain numerical results”.
• H Theil“Econometrics is concerned with the empirical determination of economic laws”
• In the words of Ragnar Frisch “The mutual penetration of quantitative econometric theory and statistical observation is the essence of econometrics”.
• Econometrics means economic measurement. Econometrics deals with the measurement of economic relationships.

Objectives Of Econometrics:
The general objective of Econometrics is to give empirical content to economic theory.

The specific objectives are as follows:

1. It helps to explain the behavior of a forthcoming period that is forecasting economic phenomena.
2. It helps to prove the old and established relationships among the variables or between the variables
3. It helps to establish new theories and new relationships.
4. It helps to test the hypotheses and estimation of the parameter.