I.2 WHY A SEPARATE DISCIPLINE?
As the preceding definitions suggest, econometrics is an amalgam of eco-
nomic theory, mathematical economics, economic statistics, and mathe-
matical statistics. Yet the subject deserves to be studied in its own right for
the following reasons.
Economic theory makes statements or hypotheses that are mostly quali-
tative in nature. For example, microeconomic theory states that, other
things remaining the same, a reduction in the price of a commodity is ex-
pected to increase the quantity demanded of that commodity. Thus, eco-
nomic theory postulates a negative or inverse relationship between the price
and quantity demanded of a commodity. But the theory itself does not pro-
vide any numerical measure of the relationship between the two; that is, it
does not tell by how much the quantity will go up or down as a result of a
certain change in the price of the commodity. It is the job of the econome-
trician to provide such numerical estimates. Stated differently, economet-
rics gives empirical 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. As we
shall see, the econometrician often uses the mathematical equations pro-
posed by the mathematical economist but puts these equations in such a
form that they lend themselves to empirical testing. And this conversion of
mathematical into econometric equations requires a great deal of ingenuity
and practical skill.
Economic statistics is mainly concerned with collecting, processing, and
presenting economic data in the form of charts and tables. These are the
I.2 WHY A SEPARATE DISCIPLINE?As the preceding definitions suggest, econometrics is an amalgam of eco-nomic theory, mathematical economics, economic statistics, and mathe-matical statistics. Yet the subject deserves to be studied in its own right forthe following reasons.Economic theory makes statements or hypotheses that are mostly quali-tative in nature. For example, microeconomic theory states that, otherthings remaining the same, a reduction in the price of a commodity is ex-pected to increase the quantity demanded of that commodity. Thus, eco-nomic theory postulates a negative or inverse relationship between the priceand quantity demanded of a commodity. But the theory itself does not pro-vide any numerical measure of the relationship between the two; that is, itdoes not tell by how much the quantity will go up or down as a result of acertain change in the price of the commodity. It is the job of the econome-trician to provide such numerical estimates. Stated differently, economet-rics gives empirical content to most economic theory.The main concern of mathematical economics is to express economictheory in mathematical form (equations) without regard to measurability orempirical verification of the theory. Econometrics, as noted previously, ismainly interested in the empirical verification of economic theory. As weshall see, the econometrician often uses the mathematical equations pro-posed by the mathematical economist but puts these equations in such a
form that they lend themselves to empirical testing. And this conversion of
mathematical into econometric equations requires a great deal of ingenuity
and practical skill.
Economic statistics is mainly concerned with collecting, processing, and
presenting economic data in the form of charts and tables. These are the
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