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What Is Econometrics?

Econometrics uses the economic theory, statistical inference and mathematics, to quantify the economic phenomena. In other words, it turns the heretical economic models into the useful tools for the economic policymaking. The objective of econometrics is to convert the qualitative statements into the quantitative statements. The Econometricians-practitioners of the econometrics-transform the models developed by the economic theorists into the versions that can be predictable. As Stock and Watson put it, "econometric methods are used in many branches of the economics, including the finance, macroeconomics, labor economics, economic policy, and microeconomics." The Economic policy decisions are rarely made without econometric analysis to assess their impact.

The Econometrics is application of the statistical methods, mathematics and, more recently, computer science, to the economic data and is described as branch of the economics that aims to give the empirical content to economic relations. It is "the quantitative analysis of the actual economic phenomena based on concurrent development of theory and the observation, related by appropriate methods of the inference." An introductory economics textbook describes the econometrics as allowing economists "to sift through the mountains of data to extract the simple relationships.

The Econometrics is the intersection of economics, statistics and mathematics. Econometrics adds the empirical content to the economic theory allowing the theories to be tested and used for the forecasting and policy evaluation.

Applications of Econometrics

The Economists apply econometric tools in a range of specific fields to shed light on the theoretical questions. They also use these tools to inform the public policy debates, forecast future events and make business decisions. List of ten interesting, practical applications of the econometric techniques are-

Forecasting macroeconomic indicators: Some macroeconomists are concerned with expected effects of the monetary and fiscal policy on aggregate performance of economy. Time-series models can be used to make the predictions about these economic indicators.

Estimating the impact of immigration on native workers: The Immigration increases supply of workers, so the standard economic theory predicts that the equilibrium wages will decrease for all the workers. However, since immigration can also have the positive demand effects, the econometric estimates are essential to determine net impact of the immigration in labor market.

Identifying the factors that affect a firm's entry and exit into a market: The microeconomic field of industrial organization, among many issues of the interest, is concerned with the firm concentration and the market power. Theory suggests that many factors, including the existing profit levels, the fixed costs associated with the entry/exit, and the government regulations can influence the market structure. The Econometric estimation helps conclude which factors are most significant for the firm entry and exit.

Determining the influence of minimum-wage laws on employment levels: The minimum income is an example of a price floor, so the higher minimum wages are supposed to produce a surplus of labor. However, impact of the price floors like minimum income depends on shapes of demand and the supply curves. Therefore, the labor economists use econometric techniques to estimate actual effect of the such policies.

Finding the relationship between management techniques and worker productivity: Use of high-performance work practices (such as the worker autonomy, the flexible work schedules, and the other policies designed to keep the workers happy) has become more popular among the managers. At some point, however, cost of implementing these policies can exceed productivity profit. The Econometric models can be used to conclude which policies lead to highest returns and improve the managerial efficiency.

Scope of Econometrics

The quantitative economics is a highly specialized field of the study which is taught at post graduation level. The courses related to this field are popular in India but it is done by the sum of best brains of society. Study of the quantitative economics became all more important as a result of utilization of the economics as a subject that can analytically approach problems and provide the efficient solutions. The subject is also known as the econometrics as it deals with the study of complex mathematical and the statistical models which help in detailed study of the concepts of economics.

The growth and the development of industries is always dependent on a little factors such as maximization of revenue, resource utilization and the similar factors. The subject quantitative economics provide the economic models required for analysis of such factors. Demand for experts in this field are vast across all sectors some of them being multinational corporations, business conglomerates, manufacturing units, advisory bodies and so on.

A global competition has led to unending the race where every enterprise wants to become market leader. This has led to enhance the quality and the services provided by the organizations. The role of economic models in such a scenario becomes all more significant. Econometrics is a extremely important subject for the research purpose because it always leads to an proficient solution of an economic trouble.

A number of respected institutes of country offers the courses on this subject. In a developing country like India, role of econometrists becomes compulsory. The experts in this field are ones who bag best jobs in market. Not only in India but employment scope for quantitative economics is experts vast abroad also.

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