Important steps while study Econometrics

Let us point out the important steps involved in undertaking an econometric study.

a) The first and foremost issue in econometrics is the statement of hypothesis. It is drawn from economic theory or some logic built by the researcher.

b) Second step is transformation of the above hypothesis into mathematical equation(s). This is our econometric model that we want to study.

c) Third step is the collection of relevant data required for the study. Data could be from primary or secondary sources.

d) The next step is estimation of the parameters-of the econometric model. This requires selection of appropriate estimation method. As you will learn in subsequent units, there are several estimation techniques or methods available to us.

e) Once estimates are obtained, the next tasks testing of the hypothesis put forth in the first step above. Basically it amounts to statistical significance of the estimates obtained by us.

f) Finally, we need to interpret' the results. On the basis of inferences drawn through hypothesis testing, we find out the implications of the results for the econometric model.

We mentioned above that statistical theory offers important guidelines to us in formulation and testing of hypothesis. We present below in very, brief, some of the relevant statistical theory that we would be using frequently.