Many economists attribute the origin of the term econometrics to Ragnar Frisch, who was one of the winners of the Nobel Prize in Economics in 1969 together with economist Jan Tinbergen, as well as one of the founders of The Econometric Society in 1933.
What is econometrics?
Before defining what it is, it is important to clarify what it is NOT. Econometrics should not be confused with economic statistics, nor is it the same as general economic theory, although it has the same quantitative character.
The Econometric Society, founded by Frisch, defined the term as the confluence of statistics, economic theory, and mathematics. Each of these separately is insufficient to have a real understanding of quantitative relationships in modern economic life.
Today we can define it as a branch of economics that employs the combined study of economic data, mathematical models, economic modelling, statistics, and mathematics to elaborate quantitative economic models and their subsequent application. We can separate it into two parts 1- econometric theory and 2- applied econometrics:
- Econometric theory: It is considered a field of statistics that develops tools and methods and studies the properties of these econometric methods.
- Applied econometrics: This is used in applied economics and deals with the development of quantitative economic models and the subsequent application of econometric methods to these models using economic data.
Econometrics attempts to estimate economic magnitudes located in a specific time and space. Moreover, econometric methods are often used to make predictions to reduce uncertainty and can therefore also be used to simulate, for example, the effects of alternative policies.
While it is true that econometrics implements methods that significantly reduce uncertainty, drastic changes in the economy are still a factor that prevents the reliability of econometric predictions from being 100%, as is the case with alternative methods.
