In case you didn't know, econometrics is a branch of economics that uses statistical and mathematical approaches to study real-world data.
In general, the goal of econometrics is to use the aforementioned mathematical and statistical methods to explain observed phenomena and the relationships between them. It takes a whole bunch of data on economics and attempts to explain it as simply as possible.
As a branch of economics, econometrics overlaps quite a bit with general economics while turning its focus onto the quantitative rather than the qualitative. There are advantages and disadvantages to this, but we won't be looking at that here.
Instead, let's dive even deeper into econometrics, what it is, and the different types of econometrics out there.
Theory and Practice
There are always several ways to divide and classify things, but one fairly clear way that you can further divide econometrics is into theory and practice.
Much in the same way that the boundaries between economics and econometrics are blurry, neither of these two classifications exist in a vacuum, but it can help to understand these two main approaches to econometrics.
Theoretical econometrics focuses more on math, statistics, and the methods used. Ideas in the field are developed and approaches will be analyzed and refined.
The findings of theoretical econometrics will often be used for economic forecasting and predictions. It's important to remember that in econometrics, almost all of the data is real-world data because controlled economics experiments are almost impossible.
The result is that theoretical econometrics has specific approaches adapted to this fact and, in many ways, is quite complicated. When trying to understand economic phenomena, econometricians rarely have the liberty of removing unwanted variables and conducting controlled experiments. This means that they always have to take into account all of the variables in play.
In applied econometrics, the theories and approaches developed through theoretical econometrics are applied to the real world.
Of course, one can't exist without the other and it's down to whether you're developing theories and hypotheses from existing data or using existing theories and applying them to observations to make future predictions or make decisions.
Both branches are essential and you'll find a theoretical and applied side in almost every field of study, but there are ways to study economics outside of econometrics.
How Is Econometrics Applied?
There are quite a few ways econometrics can be used in the real world. In macroeconomics, for example, econometrics can be used to make forecasts on the overall economy.
You could also use econometrics to predict how much a marketing campaign will affect revenues. Of course, as we'll get to shortly, there are a lot of qualitative factors to take into account and this is one of the many drawbacks of econometrics.
You could also use applied econometrics for policy-making in government. What would happen if the minimum or living wage were to increase across an entire region or country? Econometricians can look at real-world data and make quantitative forecasts based on what's happened before. Again, there are lots of other factors that also can affect this that econometrics mightn't take into account.
The Drawbacks of Econometrics
As econometrics only really concerns itself with the quantifiable, this does mean that it draws criticism for ignoring qualitative phenomena. Assuming that something is quantifiable ignores the fact that behavior is not always consistent and, therefore, cannot always be explained quantitatively by econometrics.
How much this affects econometrics will vary. Certain phenomena can be quite accurately explained as the behavior that governs them is consistent and econometric models and approaches work quite well.
In other instances, the utility of econometrics will be quite limited. For example, in situations where human beings are an integral part (as in a lot of economic phenomena), econometric approaches won't always be accurate or useful.
Econometrics will also struggle when the data available is either limited or unrepresentative. As mentioned, it's very difficult to conduct controlled experiments in economics so if the data isn't there or isn't very good, you'll have to keep collecting data until it is.
Finally, as econometrics only takes the numbers into account, it doesn't make any moral or ethical judgments. This means that econometric approaches and models can't be used in isolation when making policies or decisions that have moral or ethical implications.
Of course, you should remember that econometrics is a branch of economics and only part of the whole picture. While it has its limitations, some other branches and specializations can also play an important role.
Fields Related to Econometrics
As econometrics is multidisciplinary, there are fields that econometrics draws upon to differing degrees. Anybody working in econometrics or studying will either dip their toes into these areas or be waist-deep in them.
As a branch of economics, it's impossible to separate econometrics from it. Every econometrician is an economist specializing in using statistical methods and approaches to economic data.
Economics is the whole reason econometrics exists so regardless of which type of econometrics you choose to pursue, you'll still be fully in the world of economics.
Math is the other huge part of econometrics and the field couldn't exist without it. This is also something that you need to keep in mind if you're considering studying econometrics or working as an econometrician (which still means you have to study it!).
If you don't like math, then we'd certainly advise against a career in econometrics. However, if there are only certain aspects of math that you're against, you may be OK.
Statistics is the branch of math that econometrics mostly deals with. After all, econometrics uses statistical models on real-world economic data in an attempt to quantify relationships and phenomena.
While there are certain aspects of math you may be able to avoid in econometrics, statistics isn't one of them.
What Type of Econometrics Should You Study?
If you decide that econometrics sounds like it'd be right up your street, then you'll probably want to go on to study it, but if you're still unsure, you might be wondering if you'd prefer theoretical or applied econometrics.
Firstly, remember that econometrics is part of economics so if you go to college to study econometrics, you'll likely have to take classes in economics as well as other branches of economics.
You can study econometrics without majoring in it, but there are lots of places where a major in econometrics is possible. However, majoring in applied or theoretical econometrics isn't as commonplace so rather than studying just one of them, you'll be studying a combination of both.
How much you study each side of the econometrics coin will depend on your school and how much freedom your program gives you in terms of classes. If you have the choice, then you can more closely tailor the program to what you're interested in.
It should be noted that theoretical econometrics tends to include more mathematics, which means some students may find it more difficult. However, as every student is different, students that excel in math mightn't see the theoretical side as more difficult and may struggle with aspects of applied econometrics more.
Getting Help with Your Econometrics Studies
One of the things that makes econometrics difficult is the range of different fields that it draws upon. When you're finding your economics classes a breeze, you may be struggling in your math, statistics, or theoretical econometrics classes.
Fortunately for you, help is at hand and there are lots of options for every student.
Your fellow students will have a good understanding of what you're going through and there's strength in numbers. Getting together to help each other and study can be useful.
Don't forget that there are also plenty of websites, forums, and online spaces where you can talk to fellow students and help each other out.
Your professors are there to teach you. If you're finding something difficult, it's a good idea to speak to them. Depending on the professor, they may find the time to help you or point you in the direction of some excellent resources.
Whether you're looking to catch up or further improve your grades, working with a specialized private tutor is a great idea.
You can find tutors specializing in everything from econometrics to study skills. If there's one particular class or field that's not working for you, a tutor focusing on that area could certainly help.
If it's the whole program that you're finding difficult, then you may want to look to tutors that focus on study skills, organization, or planning. You might be surprised at how much your grades improve by making a few alterations to how you approach each of your classes.
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