Econometrics

Econometrics literally means 'economic measurement'. It is a combination of mathematical economics and statistics.

The two main purposes of econometrics are to give empirical content to economic theory and to subject economic theory to potentially falsifying tests. For example, economic theory may predict that a given demand curve should slope down. Econometric estimates can either verify or falsify that prediction, and shed light on the magnitude of the effect.

The most important statistical method in econometrics is regression analysis. For an overview of a linear implementation of this framework, see linear regression. Regression methods are important in econometrics because economists typically cannot use controlled experiments. Observational data are often subject to lurking variable and other problems which must be addressed statistically using regression models. Econometricians often seek illuminating natural experiments in t