Econometric model

Econometric model

Econometric models, are specifications of regression techniques, such as ordinary least squares, probits, logits, tobits, and linear probability models. These are used by economists to analyze correlational relationships, usually with the hope of determining causation. They are by no means only used to estimate macroeconomic trends. They are, quite more frequently, used in microeconomics to estimate virtually any sort of social relationship (much as metric models, involving these same regression techniques, are used in other social sciences). Examples of econometric models can be found in empirical articles, which are published in academic journals (Econometrica, Journal of Political Economy, for example).

Econometric models in macroeconomics are used by economists to find standard relationships among aspects of the macroeconomy and use those relationships to predict the effects of certain events (like government policies) on inflation, unemployment, growth, etc. Econometric models generally have a short-run aggregate supply component with fixed prices, and aggregate demand portion, and a potential output component. As an example in the past, the 2000 presidential candidate George W. Bush wanted to know how his planned tax cut would affect the economy. Economists entered the tax into their model and came up with an estimate of the effect. Two famous econometric models are the Federal Reserve Bank econometric model and the DRI-WEFA (now Global Insight) model.

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