Econometric Model
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Econometric models are statistical models used in econometrics. An econometric model specifies the statistics|statistical relationship that is believed to hold between the various economic quantities pertaining to a particular economic phenomenon under study. An econometric model can be derived from a determinism|deterministic economic model by allowing for uncertainty, or from an economic model which itself is stochastic. However, it is also possible to use econometric models that are not tied to any specific economic theory. A simple example of an econometric model is one that assumes that monthly Consumption (economics)|spending by consumers is linearly dependent on consumers' income in the previous month. Then the model will consist of the equation :C_t = a + bY_{t-1} + e_t, where C't is consumer spending in month t, Y't-1 is income during the previous month, and et is an error term measuring the extent to which the model cannot fully explain consumption. Then one objective of the...
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