What is econometrics?

Econometrics is a tool that helps to develop theories and assumptions before implementing an economic strategy. This facilitates better decision-making at all stages of a business action plan.

If you are interested in this field, the Bachelor in Business Administration, or the Degree in Economics at Universidad Europea will give you the knowledge you need to work in this area professionally.

Definition of econometrics

At a technical level, econometrics is a science that uses mathematical and statistical tools to calculate economic relationships linked to microeconomics and macroeconomics. Its purpose is to validate assumptions and predict, based on specific data, the behaviour of economic variables and individuals.

This discipline is divided into two main categories:

• Theoretical economics: distinguished by its primary focus on statistics and mathematical methods.
• Applied econometrics: uses the tools of theoretical econometrics to analyse various economic and business issues, such as production, investment, demand, supply and other fundamental components.

The relevance of econometrics lies in its ability to understand the functioning of a specific economy through accurate and up-to-date data from representative samples. This facilitates the analysis of specific economic situations and the formulation of assumptions about their development, all based on the relationships between various variables.

How econometrics is used

The methodology of econometrics requires several key steps:

• Hypothesis and theory formulation: economists working with data must create a hypothesis or theory that explains the phenomenon they are studying. This includes identifying relevant variables and specifying the relationships between them.
• Review of existing economic theories: As a first step in establishing a sound hypothesis, it is necessary to review existing economic theories. This provides a frame of reference for the research.
• Establishing a statistical model: a statistical model is created that quantifies the economic theory formulated in the first step. It defines how the variables are related and how they can be measured.
• Application of statistical techniques: In this step, statistical techniques are used to predict the unknown values in the statistical model. Economists sometimes use specialised econometric software to facilitate this process.
• Hypothesis testing: finally, a hypothesis test is performed to determine whether the theory formulated in the first step is valid or not. If it is rejected, economists can adjust or reformulate their model to improve its predictive ability.

This systematic approach allows economists to analyse, understand and predict economic phenomena in a rigorous and evidence-based manner.

What applications does econometrics have?

Although econometric models can be complicated, their ability to provide a quantitative understanding of economic phenomena makes them valuable tools in a variety of fields.

Economic policy

Econometrics can be used to analyse the impact of different economic policies. For example, economic growth or estimating how an adjustment in interest rates affects inflation.

Finance

In finance, econometric models are used to forecast stock market values, interest rates and other crucial aspects of financial management. They are also used to assess and control potential financial risks.

Marketing

In the field of marketing, econometrics can be used to estimate product demand, evaluate the effects of various marketing strategies and anticipate future sales.

Health

In the health field, econometrics can be used to examine factors related to income, health insurance or education, among others.

In short, econometrics is proving to be an indispensable tool in many areas of our daily lives. It facilitates the rigorous analysis of economic data, the formulation of sound assumptions and the making of informed projections.

However, it is particularly prominent in fields such as economics, finance, social research and impact assessment, where it provides valuable information through models and predictions. That is why Universidad Europea offers options to study the Master of Business Economics and the Master Financial Management. Whether you choose to study an undergraduate or postgraduate programme, you will be closely connected with organisations and businesses, getting the knowledge you’ll need to succeed in your chosen career.