Introduction to Econometrics - Part 2

Abstract

Econometrics is a mixed discipline that requires different degrees of introductory knowledge related to probability, probability distributions, statistics, mathematical economics, calculus, and matrix algebra. For example, random variables are described by probability distributions such as the normal distribution, the t-distribution, the Chi-squared distribution, the F – distribution. Econometrics is basically related to economic measurement. It is the application of statistics and mathematics to economic or financial data to obtain and interpret numerical results. Econometricians are economic and financial analysts that are interested in numerical estimation of the relationship between economic or financial variables. It is a discipline that goes beyond expressing only economic or financial theory through mathematical equations. It is focused on the empirical estimation of these mathematical equations. Econometrics is divided into theoretical and applied econometrics. Theoretical refers to the methods for measurement of economic or financial relationships. Applied econometrics examines the structure of the problem and findings in particular fields of economics or finance. As an example, we can mention demand theory or asset allocation and investment. The findings of a financial or economic theory should be combined with empirical and additional evidence by checking the coefficient estimates and their significance. Significant autocorrelation and heteroskedasticity indicate to us that we need to change the estimation method.