Chapter 3 Economic and econometric models

This chapter discusses models used in econometrics. Models play a major role in all econometric studies, whether theoretical or applied. Defining econometrics as the branch of economics concerned with the empirical estimation of economic relationships, models, together with data, represent the basic ingredients of any econometric study. The theory of the phenomena under investigation is developed into a model that is further refined into an econometric model. This model is then estimated on the basis of data pertaining to the phenomena under investigation using econometric techniques. The investigation of economic and econometric models indicates that there is a wide range of models and applications. There are many approaches to modeling, and even in the standard linear stochastic algebraic model of econometrics there are many alternative specifications available. These models have been applied in many different areasin fact, in virtually all areas of economics and in some related social sciences. The models have been used for various purposes, including structural analysis, forecasting, and policy evaluation.