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Econometric modeling

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By Paul Andrew Bourne, M.Sc. (candidate), B.Sc. (Hons), Dip. Edu.

Econometric modeling is a systematic process of events that economists rely on for their theorizing.  The example here is; demand is a function of price of the product, price of other goods, government policies, seasonalities, disposable income and preference – [D = f(P, Y, G, S, O)].  This is a modification of life’s complex variables in a simple mathematical axiom.  In order to establish that econometric model, the process is supported by six organic events: a problem statement, literature review, conceptualization, operationalization, data collection, data analysis, findings and finally the mathematical formula (simple linear regression model or multiple regression analyses).  This model is accomplished by a set of planned sequence of structured events. 


Econometric model is useless; and it cannot make inferences and prediction if it does not follow a logical sequence.  In order that this model is accepted by academics, the series of events that led to the present results must be tested in other settings by way of the same processes.  A model is not ‘a model’ unless the processes agree with the results (i.e. assumptions and empirical data).  If the events in the system are not followed sequentially and exactly, the results are highly likely to differ. If a user disregards the pattern, the conceptualization fails to become a valid and reliable econometric model.  This can be contrasted with good writing.  The same way ‘good’ writing follows a sequence of systematic events, econometric model adopts those techniques in establishing its scientific reliability.  Good academic writing fulfills a structured, concise and series of interrelated events that make for an accepted body of work similar to econometric modeling. 


Econometric model [D = F (P, Y, G, S, O)] is concise but it is a comprehensive mathematical equation that followed a structured path.  The parts are synchronized in order to yield that static model for academic usage.  Once again, an econometric model is a process of cyclical events that begin with a problem statement, to literature and other events (see, above) to which the final product relies entirely for its results.  As such, good academic writing is a human’s body that is an integrated whole.  It functions in a synchronized manner in order for the being to move from one locality to another.  It is this same concept that must be adhered to in order to arrive at an econometric model.  An econometric model is a chain of events that must flow in an organic manner without disruption.  In order to justify it predictability, validity and reliability, an econometric model utilizes the techniques of the natural science in order to establish its “scientificness”.


“Can you see how those processes of activities relate to our lives?”