# CH1 - Basic Econometrics Gujarati Introduction and Chapter...

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Basic Econometrics, Gujarati, Introduction and Chapter 1 Chapter 1 Introduction to Econometrics 1. What is Econometrics? 1.1 Definition Econometrics is a mixture of economics, mathematics and statistics as illustrated in Figure 1.1.1. Figure 1.1.1 Economics, or economic theory, makes statements or hypotheses that are mostly qualitative in nature. Only econometrics gives empirical or numerical content to most economic theory. The main concern of mathematical economics is to express economic theory in mathematical form (equations) without regard to measurability or empirical verification of the theory. Econometrics, as noted previously, is mainly interested in the empirical verification of economic theory. Economic statistics is mainly concerned with collecting, processing, and presenting economic data in the form of charts and tables. The data thus collected constitute the raw data for econometric work. But the economic statistician does not go any further, not being concerned with using the collected data to test economic theories. Although mathematical statistics provides many tools to analyze the data, the econometrician often needs special methods in view of the unique nature of most economic data, namely, that the data are not generated as the result of a controlled experiment. The econometrician generally depends on data that cannot be controlled directly. In econometrics the modeler is often faced with observational as opposed to experimental data. SHI-YI CHEN 1

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Basic Econometrics, Gujarati, Introduction and Chapter 1 That is, in the social sciences, the data that one generally encounters are non-experimental in nature, that is, not subject to the control of the researcher. This lack of control often creates special problems for the researcher in pinning down the exact causes affecting a particular situation. 1.2 Categories General- and narrow-defined econometrics The former is a general designation of all econometrics methods such as regression analysis, input-output analysis, time series analysis, semi- and non-parametric analysis and so on. The latter is just the usual-said classical econometric by using the regression analysis. Theoretical and applied econometrics Theoretical econometrics is concerned with the development of appropriate methods for measuring economic relationships specified by econometric models. It must spell out the assumptions of this method, its properties, and what happens to these properties when one or more of the assumptions of the method are not fulfilled. In applied econometrics we use the tools of theoretical econometrics to study some special field(s) of economics and business, such as the production function, investment function, demand and supply functions, portfolio theory, etc.
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CH1 - Basic Econometrics Gujarati Introduction and Chapter...

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