## Tuesday, May 24, 2005

### Economic-tricks

Econometrics rectifies, actually minimizes the errors found in Mathematical models. So it is of extreme importance for Economists & Econometricians to have a proper knowledge about Math as well as Econometrics.For those who have not yet been introduced to the basics of Econometrics, i will give a brief introduction on what it means and the steps involved.
Econometrics is a social science where the tools of Economics and Mathematics are applied to Economic theories so as to determine the relationships between the endogenous variables, if any; or whether the mathematical model is in dearth of variables i.e the dependent variable depends on exogenous variables(not included in the model originally). This requires a rearrangement or the removal of the choice variables.
The methodology which is usually followed:
(1)Understanding the Economic theory in all its totality.
(2)Framing a Mathematical model based on the Theory containing variables and constants.
(3)Inserting an error/stochastic term (the term stochastic because of its randomness) thus converting the original model into an Econometric one.
(4)Collection of data(having a large Sample size is advantageous)(only some values are plotted using the samples, the rest of the values are generated using a Mathematical process known as Interpolation)
(5)Estimation of the coefficients;either Interval/Point estimation. Interval Estimation is mostly done because it reduces the error owing to estimation, the S.E(standard error)is minimized.
(6)Testing of Hypothesis.
(7)Used for Forecasting purposes
I understand that this is a very necessary course for all Undergrads.The tricks in Economics are many-all yet to come!