1 Introductory

What is econometrics?

• Millions of data emerge in business and economics every day, and econometrics, along with statistics, helps us organize, summarize, and analyze this data to understand their relationships

• If we want to benefit from econometrics, we should analyze our data properly. The appropriateness of econometric analysis depends on variable selection, data type, model specification, model assumptions, etc.

• Econometrics is about finding a linear or nonlinear dependence (relationship) between two or more economic variables

• Existing economic theory is empirically tested, and new theories are investigated using correctly specified econometric models, which can also be used for forecasting purposes

An econometric model can be expressed as a single equation or a system of equations, including variables (\(x\), \(y\), \(z\), \(\dots\)) and parameters (\(\beta_0\), \(\beta_1\), \(\beta_2\), \(\dots\))

• Parameters \(\beta_0\), \(\beta_1\), \(\beta_2\), \(\dots\) are estimated utilizing specific method and some historical data

• The estimation method refers to appropriate estimator (the estimator with nice properties)