# Topic 1 - Definition, Scope and Methodology of Econometrics.pdf

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1Definition, Scopeand Methodologyof Econometrics
2Definition and Scope ofEconometricsEconometrics literally meansmeasurement of economicrelationships“Econometrics” is formed from two wordsof Greek origin,οικονομία(economy),and μέτρο(measure).
3Definition and Scope ofEconometricslIt is an integration of mathematics,statistical methods and economic theorywith the purpose of:lProviding numerical values of the parameters ofeconomic relationshipslForecasting variableslVerifying economic theorieslPolicy analysis
4Definition and Scope ofEconometricslEconometric methods are statisticalmethods specifically adapted to thepeculiarities of economic phenomenalThese methods deal with the randomcomponent of economic relationships which isignored by mathematics, statistical methodsand economic theory.
5Econometrics andMathematical EconomicslMathematical economics states economictheory in terms of mathematical symbolslthere is no essential difference betweeneconomic theory nor mathematical economicslNeither allows for random elements whichmight affect the relationship and make itstochastic nor do they provide numericalvalues for the coefficients of therelationships.
6Econometrics and MathematicalEconomics; ExamplelEconomic theory postulates that the demand forcommodity depends on its price, on the prices ofcommodities, on consumers’ income and on tastes:lThis is an exact relationship, because no otherfactor, except those explicitly mentioned,influences the demand.01234oQPPYtβββββ=++++
7Econometrics andMathematical EconomicslEconometrics assumes that relationshipsarenotexact.

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