Econometrics involves the application of mathematical and statistical models using data to develop theories or test hypotheses within the realm of economics. Firstly, the discipline uses real-world data and statistical trials, then it compares the results with the theory being tested.
Depending on whether you are wanting to test an existing theory or use existing data to create a new hypothesis, econometrics can be divided into two further categories: theoretical and applied.
Theoretical econometricians will concentrate on the properties of existing statistical tests in order to estimate any unknowns within the model. They will also look to develop new statistical procedures that are sound, despite the economic data’s tendency to change. This sub-category of econometrics relies heavily on mathematics, theoretical statistics and numerical methods to prove new procedures are able to draw correct inferences.
In contrast, applied econometricians will use econometric techniques to translate qualitative economic statements into quantitative statistics! That is, record the spoken word as a number that can be recorded in either a table or chart. Applied econometricians are closer to data, which means they often run into data attributes that lead to problems with existing estimation techniques. For example, one might discover that the variance of data is constantly changing over a certain period of time.
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