The relationship of econometrics to economics and statistics
By John Francis Sase
Gerard Senick, editor
July Sase, reviewer
William Gross, researcher
As a doctoral-level scholar, I and others in the fields of Economics, Statistics, and Econometrics practice the use of many economic-measuring tools, such as the findings of Forensic Economists. Typically, an economist studies and uses various economic methodologies in his/her work with practicing attorneys. As the caseloads of many law firms focus on Personal Injury and Death cases and on cases concerning Business Law, the preferred work for these applications comes from the work of Jan Tinbergen. Tinbergen (12 April 1903 – 9 June 1994) was a Dutch economist, author, and academic who received the first Nobel Memorial Prize in Economic Sciences, an award that he shared with Norwegian Economist Ragnar Frisch in 1969. They developed and applied dynamic models for analyzing economic processes. Economists widely consider Tinbergen to be one of the most influential economists of the 20th Century and one of the founders of Econometrics, the branch of Economics concerned with mathematical methods.
Gerard Senick, editor
July Sase, reviewer
William Gross, researcher
As a doctoral-level scholar, I and others in the fields of Economics, Statistics, and Econometrics practice the use of many economic-measuring tools, such as the findings of Forensic Economists. Typically, an economist studies and uses various economic methodologies in his/her work with practicing attorneys. As the caseloads of many law firms focus on Personal Injury and Death cases and on cases concerning Business Law, the preferred work for these applications comes from the work of Jan Tinbergen. Tinbergen (12 April 1903 – 9 June 1994) was a Dutch economist, author, and academic who received the first Nobel Memorial Prize in Economic Sciences, an award that he shared with Norwegian Economist Ragnar Frisch in 1969. They developed and applied dynamic models for analyzing economic processes. Economists widely consider Tinbergen to be one of the most influential economists of the 20th Century and one of the founders of Econometrics, the branch of Economics concerned with mathematical methods.
The critical contributions by Tinbergen to Econometrics include the development of the first macroeconomic models, the solution of the identification problem, and the understanding of dynamic models. Tinbergen also served as a founding trustee of Economists for Peace and Security, the United Nations-accredited global organization of economists, political scientists, and security established in 1989.
In 1945, Tinbergen founded the Bureau for Economics Policy Analysis (CPB) and was the agency’s first director. Tinbergen remains well-known to English-speaking readers as the author of numerous technical journal articles. Furthermore, he served as the director of the study on Statistical Testing of Business-Cycle Theories by the League of Nations and co-authored a respected book, with Dutch Economist Jacques Jacobus Polak, “The Dynamics of Business Cycles: A Study in Economic Fluctuations.” First published in Holland in 1942, (“The Dynamics of Business Cycles” was published in America in 1950 by the University of Chicago Press).
Tinbergen intended this book to serve as a traveling guide for economists and others who wish to go sightseeing in the domain of Econometrics. “The Dynamics of Business Cycles” continues to serve as a fundamental guide through the accumulation of economic literature published in this subfield of Economics over the years.
In his writing, Tinbergen assumes that students interested in this ever-developing field may have yet to study Mathematical Economics. He believed that earlier thinkers in Economics thought that the level of learning in elementary-school mathematics and secondary-school algebra courses that include basic graphic-presentation skills would suffice.
However, in recent decades, economists have attempted to focus on the logical foundations of this area of science to describe the results more effectively. As a younger branch of science, Econometrics can be learned from periodical articles, instructional videos, and updated textbooks.
Tinbergen exclaimed, “May this guide stimulate the desire for traveling!”
The Relationship of Econometrics to Economics and Statistics:
Economics/Statistics/Econometrics
Those of us who teach Economics and Statistics have felt an acute need for textbooks that offer students an adequate introduction to the growing number of Econometric studies in print and other media. Tinbergen intended that his book would fill this need precisely. He did a great job!
Econometrics
The subfield of Econometrics continues to address the mathematical formulation of economic hypotheses. Furthermore, Tinbergen emphasized a forward view toward statistical testing of such hypotheses. Over more than a half-century, we have evolved from using somewhat primitive devices to equipment that holds more data extensively and processes it faster. Some even fit comfortably into a coat pocket!
Competency
Econometricians need to develop three directions of competencies: becoming an Economic Theorist, an Economic Mathematician, and an Economic Statistician. Therefore, we need to remain unsurprised that Econometric Studies receive criticism from one or more of these three other points of view by specialists in their fields. Therefore, Econometrics remains an interdisciplinary science, and students of Econometrics must remain patient and respect all of the three interdisciplinary fields mentioned above.
Econometrics maintains significant attributes that make it an analytical methodology. This field possesses powerful mathematical tools that allow it to formulate economic hypotheses without rigidly confining its boundaries to ceteris paribus assumptions. Furthermore, the equally powerful statistical tools of Econometrics enable us to confront such hypotheses with facts meaningfully. However, even though we use mathematical symbols within our processes of economic analysis, the analysis becomes, in Tinbergen’s words, “more abstract, more theoretical, or more useless. Quite precisely, the opposite appears true.”
Nevertheless, Econometricians continue to make mistakes. Though remaining believable sometimes, mathematical symbols do not guarantee Econometrics against hidden and contradictory assumptions. Furthermore, this method does not protect an analyst against poor judgment or stupidity. As Tinbergen notes, “Econometrics remains no better than the econometrician pursuing it!” However, such a belief does not impugn the analytical technique itself.
I (Dr. Sase) am working on retranslating Tinbergen’s text, which was revised and enlarged for the English edition. In addition to the gratis use afforded to English-reading/speaking students of Economics and professionals in the field of Law, we can rely upon recent references included within the Dutch-language edition.
The book explains the relationship of Econometrics to Economics and Statistics while outlining the process of formulating economic hypotheses mathematically and subjecting them to a statistical test. Tinbergen explains the methodology of obtaining the various component equations of the system, be they psychic, technical, or business. Furthermore, it describes the process of setting up an economic model of the system. Finally, the book illustrates the use of Econometric methods for purposes related to policy.
The beginning student needs more knowledge of Mathematics and Statistics. With careful study, s/he will become involved in some of the most exciting and vital aspects of Economic Theory and Policy.
This month, we explored Part One of Tinbergen’s work in our column. Now, we include an overview of the topics for the next three installments.
Part II. The Working Methods of Econometrics:
Mathematical Formulation
• The function of Mathematical Economics; general remarks
- 5 Which variables should be included in the relation?
- 6 The mathematical form of the relation
- 7 How the time factor appears in the relation
- 8 Connection with other relations
- 9 Supply equation and price-fixation equation
- 10 Macroeconomic investigations
- 11 The description of complete systems
- 12 The movements of complete systems
- 13 Stable and unstable equilibria: the purpose of economic policy
Part III. Statistical Testing
- 14 Statistical testing; measuring phenomena
- 15 Determining the components of time series; general remarks
- 16 More refined methods; the trend
- 17 Determining and eliminating the random components
- 18 Determining the seasonal fluctuations and the- business-
- 19 Simple correlation
- 20 Possibilities of application in the economic field
- 21 Multiple correlation
- 22 Evaluating the uncertainty of the results
- 23 Simultaneous equations
- 24 The use of regression analysis in Econometrics
Part III. Results of Econometric Research
The Psychic Reactions
- 25 Contents and subdivision of this chapter
- 26 Psychic reaction relations; Engel curves
- 27 The “propensity to consume” and the “multiplier”
- 28 Demand curves; agricultural products
- 29 Demand curves; services and industrial products
- 30 The demand function for all goods taken together
- 31 Dynamic-demand functions
- 32 The foundations of demand curves; indifference surfaces
- 33 Cost curves for separate industrial enterprises-
Microeconomic Cost-Curves
- 34 The production function (macroeconomic cost curves)
- 35 Technical developments
Reactions of Business Life
- 36 Supply of products
- 37 The demand for investment goods
- 38 Substitution elasticities
- 39 Reaction relations in the financial sphere
The Functioning of Economic Systems
- 40 Separate markets (Echo Principle, Hog Cycle, Building Cycle)
- 41 The General Business-Cycle Movement
- 42 Comparative-Static Systems
- 43 Concluding remarks
Part IV. Economic Policy
The Use of Econometric Research for Economic Policy (An Example)
- 44 Object and summary of this chapter
- 45 Description of the model and its alternatives
- 46 Choice of variables; boundary conditions
- 47 Directives and Instruments; the strategy of economic policy
- 48 Isolated wage policy; consequences of the double function of wages
- 49 Isolated price-policy
- 50 Devaluation
- 51 Combined wage, price, and tax policy; the “optimum” solution
- 52 A closer examination of tax and subsidy policy
- 53 The influence of wages upon employment under various site conditions
- 54 Summary: is it possible to translate our analysis into verbal deductions?
A. The Use of Correlation Analysis in Economic Research
- 55. Introductory
- 56. Multiple correlation-analysis
- 57. Determination of uncertainty in results
- 58. Simultaneous relations
- 59. Some further remarks on the reduced-form-method
- 60. General remarks on the application of the correlation-method
- 61. Some successful examples
- 62. Conclusions of political and scientific importance
B. Statistical Evidence on the Acceleration Principle
- 63. Theoretical introduction
- 64. Statistical verification
C. Long-Term Foreign Trade Elasticities
- 65. Importance of long-term elasticities of imports and exports
- 66. Long-term vs. short-term elasticities
- 67. Measurement from long-time series
- 68. Measurements from cross-section studies
- 69. Concluding remarks
————————
Dr. John F. Sase teaches Economics at Wayne State University and has practiced Forensic and Investigative Economics for twenty years. He earned a combined M.A. in Economics and an MBA at the University of Detroit, followed by a Ph.D. in Economics from Wayne State University. He is a graduate of the University of Detroit Jesuit High School (www.saseassociates.com).
Gerard J. Senick is a freelance writer, editor, and musician. He earned his degree in English at the University of Detroit and was a supervisory editor at Gale Research Company (now Cengage) for over twenty years. Currently, he edits books for publication (www.senick-editing.com).
Julie G. Sase is a copyeditor, parent coach, and empath. She earned her degree in English at Marygrove College and her graduate certificate in Parent Coaching from Seattle Pacific University. Ms. Sase coaches clients, writes articles, and edits copy (royaloakparentcoaching.com).
In 1945, Tinbergen founded the Bureau for Economics Policy Analysis (CPB) and was the agency’s first director. Tinbergen remains well-known to English-speaking readers as the author of numerous technical journal articles. Furthermore, he served as the director of the study on Statistical Testing of Business-Cycle Theories by the League of Nations and co-authored a respected book, with Dutch Economist Jacques Jacobus Polak, “The Dynamics of Business Cycles: A Study in Economic Fluctuations.” First published in Holland in 1942, (“The Dynamics of Business Cycles” was published in America in 1950 by the University of Chicago Press).
Tinbergen intended this book to serve as a traveling guide for economists and others who wish to go sightseeing in the domain of Econometrics. “The Dynamics of Business Cycles” continues to serve as a fundamental guide through the accumulation of economic literature published in this subfield of Economics over the years.
In his writing, Tinbergen assumes that students interested in this ever-developing field may have yet to study Mathematical Economics. He believed that earlier thinkers in Economics thought that the level of learning in elementary-school mathematics and secondary-school algebra courses that include basic graphic-presentation skills would suffice.
However, in recent decades, economists have attempted to focus on the logical foundations of this area of science to describe the results more effectively. As a younger branch of science, Econometrics can be learned from periodical articles, instructional videos, and updated textbooks.
Tinbergen exclaimed, “May this guide stimulate the desire for traveling!”
The Relationship of Econometrics to Economics and Statistics:
Economics/Statistics/Econometrics
Those of us who teach Economics and Statistics have felt an acute need for textbooks that offer students an adequate introduction to the growing number of Econometric studies in print and other media. Tinbergen intended that his book would fill this need precisely. He did a great job!
Econometrics
The subfield of Econometrics continues to address the mathematical formulation of economic hypotheses. Furthermore, Tinbergen emphasized a forward view toward statistical testing of such hypotheses. Over more than a half-century, we have evolved from using somewhat primitive devices to equipment that holds more data extensively and processes it faster. Some even fit comfortably into a coat pocket!
Competency
Econometricians need to develop three directions of competencies: becoming an Economic Theorist, an Economic Mathematician, and an Economic Statistician. Therefore, we need to remain unsurprised that Econometric Studies receive criticism from one or more of these three other points of view by specialists in their fields. Therefore, Econometrics remains an interdisciplinary science, and students of Econometrics must remain patient and respect all of the three interdisciplinary fields mentioned above.
Econometrics maintains significant attributes that make it an analytical methodology. This field possesses powerful mathematical tools that allow it to formulate economic hypotheses without rigidly confining its boundaries to ceteris paribus assumptions. Furthermore, the equally powerful statistical tools of Econometrics enable us to confront such hypotheses with facts meaningfully. However, even though we use mathematical symbols within our processes of economic analysis, the analysis becomes, in Tinbergen’s words, “more abstract, more theoretical, or more useless. Quite precisely, the opposite appears true.”
Nevertheless, Econometricians continue to make mistakes. Though remaining believable sometimes, mathematical symbols do not guarantee Econometrics against hidden and contradictory assumptions. Furthermore, this method does not protect an analyst against poor judgment or stupidity. As Tinbergen notes, “Econometrics remains no better than the econometrician pursuing it!” However, such a belief does not impugn the analytical technique itself.
I (Dr. Sase) am working on retranslating Tinbergen’s text, which was revised and enlarged for the English edition. In addition to the gratis use afforded to English-reading/speaking students of Economics and professionals in the field of Law, we can rely upon recent references included within the Dutch-language edition.
The book explains the relationship of Econometrics to Economics and Statistics while outlining the process of formulating economic hypotheses mathematically and subjecting them to a statistical test. Tinbergen explains the methodology of obtaining the various component equations of the system, be they psychic, technical, or business. Furthermore, it describes the process of setting up an economic model of the system. Finally, the book illustrates the use of Econometric methods for purposes related to policy.
The beginning student needs more knowledge of Mathematics and Statistics. With careful study, s/he will become involved in some of the most exciting and vital aspects of Economic Theory and Policy.
This month, we explored Part One of Tinbergen’s work in our column. Now, we include an overview of the topics for the next three installments.
Part II. The Working Methods of Econometrics:
Mathematical Formulation
• The function of Mathematical Economics; general remarks
- 5 Which variables should be included in the relation?
- 6 The mathematical form of the relation
- 7 How the time factor appears in the relation
- 8 Connection with other relations
- 9 Supply equation and price-fixation equation
- 10 Macroeconomic investigations
- 11 The description of complete systems
- 12 The movements of complete systems
- 13 Stable and unstable equilibria: the purpose of economic policy
Part III. Statistical Testing
- 14 Statistical testing; measuring phenomena
- 15 Determining the components of time series; general remarks
- 16 More refined methods; the trend
- 17 Determining and eliminating the random components
- 18 Determining the seasonal fluctuations and the- business-
- 19 Simple correlation
- 20 Possibilities of application in the economic field
- 21 Multiple correlation
- 22 Evaluating the uncertainty of the results
- 23 Simultaneous equations
- 24 The use of regression analysis in Econometrics
Part III. Results of Econometric Research
The Psychic Reactions
- 25 Contents and subdivision of this chapter
- 26 Psychic reaction relations; Engel curves
- 27 The “propensity to consume” and the “multiplier”
- 28 Demand curves; agricultural products
- 29 Demand curves; services and industrial products
- 30 The demand function for all goods taken together
- 31 Dynamic-demand functions
- 32 The foundations of demand curves; indifference surfaces
- 33 Cost curves for separate industrial enterprises-
Microeconomic Cost-Curves
- 34 The production function (macroeconomic cost curves)
- 35 Technical developments
Reactions of Business Life
- 36 Supply of products
- 37 The demand for investment goods
- 38 Substitution elasticities
- 39 Reaction relations in the financial sphere
The Functioning of Economic Systems
- 40 Separate markets (Echo Principle, Hog Cycle, Building Cycle)
- 41 The General Business-Cycle Movement
- 42 Comparative-Static Systems
- 43 Concluding remarks
Part IV. Economic Policy
The Use of Econometric Research for Economic Policy (An Example)
- 44 Object and summary of this chapter
- 45 Description of the model and its alternatives
- 46 Choice of variables; boundary conditions
- 47 Directives and Instruments; the strategy of economic policy
- 48 Isolated wage policy; consequences of the double function of wages
- 49 Isolated price-policy
- 50 Devaluation
- 51 Combined wage, price, and tax policy; the “optimum” solution
- 52 A closer examination of tax and subsidy policy
- 53 The influence of wages upon employment under various site conditions
- 54 Summary: is it possible to translate our analysis into verbal deductions?
A. The Use of Correlation Analysis in Economic Research
- 55. Introductory
- 56. Multiple correlation-analysis
- 57. Determination of uncertainty in results
- 58. Simultaneous relations
- 59. Some further remarks on the reduced-form-method
- 60. General remarks on the application of the correlation-method
- 61. Some successful examples
- 62. Conclusions of political and scientific importance
B. Statistical Evidence on the Acceleration Principle
- 63. Theoretical introduction
- 64. Statistical verification
C. Long-Term Foreign Trade Elasticities
- 65. Importance of long-term elasticities of imports and exports
- 66. Long-term vs. short-term elasticities
- 67. Measurement from long-time series
- 68. Measurements from cross-section studies
- 69. Concluding remarks
————————
Dr. John F. Sase teaches Economics at Wayne State University and has practiced Forensic and Investigative Economics for twenty years. He earned a combined M.A. in Economics and an MBA at the University of Detroit, followed by a Ph.D. in Economics from Wayne State University. He is a graduate of the University of Detroit Jesuit High School (www.saseassociates.com).
Gerard J. Senick is a freelance writer, editor, and musician. He earned his degree in English at the University of Detroit and was a supervisory editor at Gale Research Company (now Cengage) for over twenty years. Currently, he edits books for publication (www.senick-editing.com).
Julie G. Sase is a copyeditor, parent coach, and empath. She earned her degree in English at Marygrove College and her graduate certificate in Parent Coaching from Seattle Pacific University. Ms. Sase coaches clients, writes articles, and edits copy (royaloakparentcoaching.com).
