Econometrics

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  2. Mechanism Design Theory

    An economic theory that seeks to determine the situations in ...
  3. Applied Economics

    The application of economic theories and principles to real world ...
  4. Financial Economics

    A branch of economics that analyzes the use and distribution ...
  5. Simon Kuznets

    A Russian-American economist and statistician who won the 1971 ...
  6. Ragnar Frisch

    A Norwegian economist and joint winner in 1969 of the very first ...
RELATED FAQS
  1. What does a strong null hypothesis mean?

    In logic, a null hypothesis refers to a very general assumption that no significant correlation exists between two different ... Read Full Answer >>
  2. Should investors care more about microeconomics or macroeconomics?

    Individual investors are probably better off focusing on microeconomics than macroeconomics. There may be some disagreement ... Read Full Answer >>
  3. Why is the crowding out effect less likely to occur during a deep recession?

    The theory of crowding out states that an increase in government financial activity, such as spending or borrowing, causes ... Read Full Answer >>
  4. Is economics a science?

    Economics is generally regarded as a social science, although some critics of the field argue that economics falls short ... Read Full Answer >>
  5. What are common examples of Serial Correlation in finance?

    Serial correlation, also known as autocorrelation, describes the relationship between observations on the same variable over ... Read Full Answer >>
  6. What is a "linear" exposure in Value at Risk (VaR) calculation?

    A linear exposure in the value-at-risk, or VaR, calculation is represented by positions in stocks, bonds, commodities or ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  3. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  4. Economics

    The Uncertainty Of Economics: Exploring The Dismal Science

    Learning about the study of economics can help you understand why you face contradictions in the market.
  5. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  6. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  7. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  8. Investing

    The Strong Dollar’s (Real) Toll On Tech Stocks

    A large portion of U.S. technology companies’ sales occur overseas, given the strong international business and consumer demand from many U.S. tech firms.
  9. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  10. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center