The Student Room Group

Statistics in economics?

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(edited 9 years ago)
Econometrics is the use of statistics on samples to derive the values of economic relationships (or any relationship between variables). Econometrics is a tool for the modern science of economics. In the days of: Keynes, Hayek, Marx, Pigou, Marshall, economics was essentially hand waving. People made claims about how the economy worked without using mathematical models - this meant theories could not be falsified. Modern day economics is about developing mathematical models which produce quantitative results - which can then be tested. The techniques of econometrics have been developed to test the results of models and deal with the problems that arise from economic data (namely that variables cannot be fixed).

A very important part of econometrics is hypothesis testing. So things like confidence intervals, significance levels are very relevant to metrics. Probability distributions are also very important as well - for both testing hypotheses and developing statistics.
Original post by Gcseboy1997
Thanks! Do you know how/ whether things like the poisson distribution/ normal distribution are used in undergrad econometrics?


Yes - the normal distribution is absolutely fundamental btw.
Original post by Gcseboy1997
how is it used in econometrics?


It is used as the building block for many of the distributions in econometrics. For example the student t distribution (the distribution that is used to for single restriction hypothesis testing).

The other key thing about the norm dist is that when you take averages from any distribution, and you plot the averages, they will converge to a normal distribution. From this result you can find out various properties of the original distribution.

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