Econometrics, History of

Abstract

The term econometrics refers to the use of statistical methods for the measurement of empirical relationships and theory testing in economics. It grew up alongside biometrics in the early years of the twentieth century, adapting correlation, regression, and graphic techniques to the investigation of economic phenomena. The important conceptual innovation, by Jan Tinbergen, of the ‘econometric model’ to serve as a device upon which theoretical ideas could be matched with suitable data, was generated from applied econometric work of the 1930s. Trygve Haavelmo who sought to provide probability foundations for both theoretical and applied econometrics transformed econometrics around mid-twentieth century. The immediate post Second World War period was dominated by the desire to establish results in theoretical econometrics, yet the upheavals in the economic experiences of the 1970s provided a greater incentive to innovation. Large-scale macroeconometric models had to be revamped to take account of both empirical events and changing fashions in economic theory. The concurrent development of a separate microeconometrics was prompted both by innovation in techniques and by a widening in scope of data collected by governments. The possibilities of econometrics, both theoretical and applied, widened as computation techniques improved over the twentieth century, but have continued to be the subject of strong methodological debates over scope and method.