econometrics

econometrics, technique of economic analysis that expresses economic theory in terms of mathematical relationships and then tests it empirically through statistical research. Econometrics attempts to develop accurate economic forecasting and to make possible successful policy planning. The term econometrics is generally attributed to Norwegian economist Ragnar Frisch, who wrote important studies on the subject in the mid-20th cent. and founded the Econometric Society. In the 1930s econometrics emerged as an important method of economic study on a national level, as part of a broad, new field called macroeconomics. In the 1950s economists such as Lawrence Klein applied Keynesian principles to econometrics and formed macroeconometric models of the economy of the United States. Scholars, economists, and public officials soon followed Klein's lead and began to use large-scale econometric models in both historical and planning analyses.

With changes in the 1970s from fixed to floating exchange rates and inflation heavily influencing the economy, criticism of econometircs grew considerably. The accuracy of econometric models was also questioned given their failure to predict, for example, the Asian financial failures in 1997–98. In the late 1990s econometrics began to be used in advertising (where it is also called "market-mix modeling"), in which the models measure and predict sales performance. Econometrics has been significantly aided by advances in computer technology.

Bibliography

See R. J. Epstein, A History of Econometrics (1986); D. N. Gujarti, Basic Econometrics (3d ed. 1995); P. Kennedy, Guide to Econometrics (4th ed. 1998); and J. J. Heckman and E. E. Learner, Handbook of Econometrics (1999).

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econometrics

Statistical and mathematical analysis of economic relationships. Econometrics creates equations to describe phenomena such as the relationship between changes in price and demand. Econometricians estimate production functions and cost functions for firms, supply-and-demand functions for industries, income distribution in an economy, macroeconomic models and models of the monetary sector for policy makers, and business cycles and growth for forecasting. Information derived from these models helps both private businesses and governments make decisions and set monetary and fiscal policy. See also Ragnar Frisch; macroeconomics; microeconomics.

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econometrics [ē¦kän·ə¦me·triks]

(industrial engineering)

The application of mathematical and statistical techniques to the estimation of mathematical relationships for testing of economic theories and the solution of economic problems.