Broadly speaking, econometrics aims to give empirical content to economic relations for
testing economic theories, forecasting, decision making, and for ex post decision/policy
evaluation. The term ‘econometrics’ appears to have been first used by Pawel Ciompa
as early as 1910, although it is Ragnar Frisch who takes the credit for coining the term,
and for establishing it as a subject in the sense in which it is known today (see Frisch,
1936, p. 95, and Bjerkholt, 1995). By emphasizing the quantitative aspects of economic
relationships, econometrics calls for a ‘unification’ of measurement and theory in economics.
Theory without measurement can only have limited relevance for the analysis
of actual economic problems. Whilst measurement without theory, being devoid of a
framework necessary for the interpretation of the statistical observations, is unlikely to
result in a satisfactory explanation of the way economic forces interact with each other.
Neither ‘theory’ nor ‘measurement’ on their own is sufficient to further our understanding
of economic phenomena.