Introduction to Econometrics

Econometrics is the branch that combines economic theory, mathematical methods and statistical inference to give numerical, empirical content to economic relationships — that is, to actually estimate and test economic laws and hypotheses using real-world data, rather than only stating them in words or symbols.

Econometrics differs from its two parent disciplines in a specific way:

• Statistics provides general-purpose tools (means, correlation, index numbers, and so on) that can be applied to any kind of numerical data, not economic data specifically, and is not concerned with testing economic theory as such.
• Mathematical Economics expresses economic theories and relationships in mathematical/symbolic form (e.g. writing demand as a function of price) but does not itself use real observed data to test whether the theory actually holds.
• Econometrics uses statistical techniques specifically to estimate the mathematical relationships that economic theory proposes, using real data — for example, estimating the actual numerical value of the price elasticity of demand for a commodity from real market data, or testing whether a proposed consumption function genuinely fits a country's observed income and consumption figures. …