Econometrics is interesting because it provides the tools to enable us to extract useful information about important economic policy issues from the available data. Students who gain expertise in econometrics will also find that they enhance their job prospects.
Econometrics is the use of statistical techniques to understand economic issues and test theories. Without evidence, economic theories are abstract and might have no bearing on reality (even if they are completely rigorous). Econometrics is a set of tools we can use to confront theory with real-world data.
The goal of an applied econometric study might be to test a hypothesis – for example, to determine how much of the ‘gender pay gap’ can be explained by differences in education and experience. Alternatively, a study could estimate a key parameter, such as the price elasticity of demand for oil. Or econometric techniques could be used to generate forecasts, like the Bank of England uses to determine the level that the base interest rate should be set each month.
Guy Judge, Principal Lecturer in Quantitative Economics, University of Portsmouth