Econometrics fuses together math and basic economics to examine how certain variables might affect an economic relationship. Much of this work is theoretical, using different possible scenarios plugged into formulas. For instance, governments and banks often use applied economics methods like this to see how shifts in interest rates or wages might affect the economy’s health. People studying this statistical technique are usually in their third or fourth year of economic study.
It’s a common misconception that economic statistics and econometrics are exactly the same thing. The difference is that statistics are performed in controlled experiments with known data sets, whereas econometrics deals with data as is or data that is subjected to hypothetical possibilities too. Regression analysis is often used in this technique, which determines the mean of random variables is predicted based on the mean of previously measured variables. Other tools used include time-series analysis (measuring variables over a period of time) and cross-sectional analysis (studying the correlation between two variables at a certain point in time).
As such, econometrics is an important area of economic research today. Rather than just relying on theory, economists can ground their assumptions in mathematical evidence in a more practical way. In the end, they may find that reducing interest rates leads to rises in lending, based on past activity. Or one may note that income levels increase in a straight line with levels of education. Governments use this method when determining international trade policies and projected budgets. Businesses use it when planning salary increases, crafting performance expectations and deciding their budgets. While it may not be perfect, it is an important tool used in economics today. Institutes who require quantitative methods of analyzing data, forecasting, modeling and forming policy need this.33333333
Economics research experts say there have been 32 recessions since’54. The average economic recession lasted 17 months and began to expand for another 38 months before a full rebound was achieved. In recent history, we suffered a—month recession from July’81 through to November’82, an 8-month recession from July’90 through March’91 and another 8-month recession from March 2001 to November 2001. The current recession began in December 2007. While it caught average Americans off-guard, top market analysts were shaking their heads, saying they saw it coming for years.
An economic recession is ugly. Consumers lose their jobs, lose their homes, file for bankruptcy and tighten spending. Businesses shed jobs, cut wages, lay-off employees and collapse. Lending institutions have trouble collecting from debtors and this dries up their liquid assets. Investors see drops in profits and nervously pull their money out. As a result, our Gross Domestic Product declines and our nation as a whole becomes poorer. Is there no end in sight for our current despair? Global economics experts have a thing or two to say about the current crisis.
Predicting an economic recession is challenging, since so many factors can affect the ebb and flow of the economy, but education economics professors say there are some obvious predictors. A stock market drop often precedes the start of a recession, they say. In “Stocks For the Long Run,” the author mentions ten recessions that were preceded by a stock market downturn 0 to- months prior, although other experts suggest half of the declines (of 10% or more) since’46 have not been followed by recessions. In fact, half of the declines occurred once a recession had already started. Another way to look at economic stability is to look at the profit from 10-year/3-month Treasury securities, although it sometimes takes 6 to’ months to show a recession after declines. A third predictor is a three-month rise in unemployment rates and jobless claims. Lastly, real estate markets often weaken before a recession, although microeconomics experts say this can go on for long periods of time before a recession ever hits.
Economic theory has become a popularity issue, even a political football of the elitists. Sound Friedman school economic theory has been put in the box by politicians favoring the drunken spending theories proposed by Keynesian economic theory. Theory need building on quantifying realistic relationships and accounting for potential cyclical explosions.The economic recession has spread its insidious tentacles outside of the U.S. to global economics, hurting countries like Latvia, Estonia, Iceland, Ireland, Lithuania, Seychelles, Venezuela, Ukraine and Jamaica. Economics research shows that even the UK, Japan, China and Canada are feeling the pinch of America’s pain. There’s no telling how long we’ll be in this recession or what the formula is for digging out, but many Americans are willing to trust the Obama-Biden administration with the task, while simply hoping and praying that we’ll see a turnaround soon.
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