A Norwegian economist named Ragnar A. K. Frisch originally applied the label “econometrics” to the use of statistical techniques for the resolution of economic problems. His work won him the first Nobel Prize in Economics decades later. Although far from the first to use statistical techniques in economics, Frisch defined the best methods for doing so at the time and laid the foundation for modern econometrics. In the past century, the field has evolved extensively, as researchers continuously pioneer new techniques and implement novel tools. Frisch’s core principle, however, comprising the basic logic and techniques of the field, remains at the heart of econometrics. The primary tool of econometrics is regression analysis. The flexibility of regression analysis makes it a powerful tool in a wide range of situations. At the same time, economists must understand how to properly use regression analysis, as misapplications can result in seriously skewed data. Other elements of the econometrics toolbox include methods that account for chance, which economists must not underestimate.
About the Author:
Berton Hochfeld holds a Bachelor’s degree in Economics from the University of Pennsylvania and a Master of Business Administration from Harvard University. When not serving as the Managing Director at Hochfeld Capital Management, Berton Hochfeld enjoys reading about advances in econometrics.