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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!

2 comments:

Anonymous said...

hey i find thx document quiet interesting as it provides the basis of economics... good work.

Tina Roy said...

Good blog by author providing wonderful information with well written article. Appreciate author for giving this important information to all investors.

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