What is Econometrics?

With a working example of regression analysis using sklearn in Python

Econometrics is a toolkit. It incorporates knowledge from other disciplines, uses this information to summarize reality and creates a simplified model to represent this reality.

A few example questions Econometrics can asnwer:

• What are the price elasticities of demand for certain products?

• What is forecasted sales, economic growth and inflation ?

• By how much does an additional year at university benefit your chances in the labour market?

• What is the impact of a training programme on hourly wages? (If the impact is zero, then one must rethink the policy. If the effects are strong, then how can policy be expanded to support this program?)

• Do returns on various investment strategies follow economic theories?

Each piece of empirical evidence gives us an idea of how policy should be implemented and whether it can be implemented effectively. Econometrics adds numbers to theories and tests Economic relationships.

What differentiates Econometrics from Statistics and Economics?

Econometrics relies both on econometric theory, but brings Statistics into it. Economic theory is tested by using statistical techniques. However, Economics is a Social Science and the widespread use of…