Econometrics

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DEFINITION of 'Econometrics'

The application of statistical and mathematical theories to economics for the purpose of testing hypotheses and forecasting future trends. Econometrics takes economic models and tests them through statistical trials. The results are then compared and contrasted against real-life examples.

BREAKING DOWN 'Econometrics'

Econometrics can be subdivided into two major categories: theoretical and applied. Econometrics uses tools such as frequency distributions, probability and probability distributions, statistical inference, simple and multiple regression analysis, simultaneous equations models and time series methods. An example of a real-life application of econometrics would be to study the hypothesis that as a person's income increases, spending increases.

Lawrence Klein, Ragnar Frisch and Simon Kuznets each won the Nobel Prize in economics for their research in econometrics.

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