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Econometrics unites economic theory with economic statistics and mathematics. The end goal is to analyze and test economic relationships, using different scenarios and theoretical situations to predict what might logically happen. Students who do well in this discipline are generally bright in financial economics, economic research and statistics. What started in the thirties following the Great Depression is now being offered by leading economists at universities around the world.
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).
Like other economics statistics, econometrics is often slammed by critics who feel the results can be inaccurate. After all, predictions of the future must be made based on current data only, without withstanding the test of time. Also, if economists accidentally measured a relationship linearly, when it should be curved, they may produce incorrect findings. Relying too heavily on statistics, without considering what forces shaped those statistics, could be a serious flaw in the study. Even so, people’s insatiable demand to see what lies ahead has created an opening for intelligent individuals to fuse math and economic theory together to create assumptions based on logic and probability.
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.
Microeconomics experts have been busy examining how individual households and businesses make decisions. When consumer spending goes down, companies first cut jobs and sometimes they collapse. This, in turn, causes more consumers to stop spending because they’ve lost their jobs, which may affect other unrelated businesses. In the current economic recession, massive-scale job losses began in February 2008, when 63,000 jobs were shed. By the following September, another 156,000 jobs were lost, which was followed by an astounding 533,000 job cuts in November, which was the largest single-month job loss since the Great Depression. From December of 2007 to March 2009, there have been 5.1 million job losses. Over this same period, investor and consumer confidence has declined further, thus making it more difficult to rebound.
We’ve seen a combination of economic theories come together to try digging out of this economic recession. So far, the government has spent money on propping up our financial institutions that were “too big to fail,” invested in infrastructure and energy, reduced interest rates, cut taxes and put money back into consumers’ pockets to give the economy a jolt. We turn now to lessons in economics to learn what we can do to prevent further collapse and get back on-track and restore our status as a global economics super power.
Top market economists disagree vehemently on how we can dig out of the economic recession. Some argue for a heavy-handed government comparable to Franklin D. Roosevelt’s, where the “New Deal” programs stimulated much-needed industries. Others argue for decreasing business taxes and regulation to create more jobs or investing in energy/infrastructure to create more jobs. Perhaps we really found our way out of the Great Depression through World War II production and exporting. The current administration has used a number of different approaches so far to stimulate our road to recovery, but eager Americans wonder when we’ll actually see the signs of a rebound.
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Tags: business cycle, economic recessions, economics, Finances, macro economics, personal checks
Posted in Finances · November 11th, 2009 · Comments (0)
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