Econometrics << ih `kon` uh MEHT rihks >> is the branch of economics that applies mathematics and statistics to economic theory. Business and government use econometrics to analyze and to predict economic activity.
Econometrics puts economic relationships into mathematical form and uses statistical data to try to make those relationships operational. For example, econometricians might believe that a person’s income determines how much he or she spends. Econometricians would express this relationship in a general formula. They would then study data from various time periods and groups of people to see how income affects spending. They might determine that each $10 rise in income brings an $8 increase in spending.
Econometricians often develop a set of such formulas, called a model, establishing the interrelationships among various factors of an economy. Models may describe the economy of a community, a nation, or the world. Econometricians use computers to store data and make calculations.
As early as the 1600’s, the English economist Sir William Petty stressed the use of mathematics and statistics in economics. In the late 1800’s, the French economist Leon Walras laid the foundation for econometrics with his mathematical description of the market economy. In 1969, the econometricians Ragnar Frisch of Norway and Jan Tinbergen of the Netherlands won the first Nobel Prize awarded for economics. Another econometrician, Lawrence R. Klein of the United States, won the 1980 Nobel Prize for economics.
See also Sargent, Thomas John; Sims, Christopher Albert.
