Methodology of econometrics

The methodology of econometrics is the study of the range of differing approaches to undertaking econometric analysis.

Commonly distinguished differing approaches that have been identified and studied include:

In addition to these more clearly defined approaches, Hoover identifies a range of heterogeneous or textbook approaches that those less, or even un-, concerned with methodology, tend to follow.

Econometrics may use standard statistical models to study economic questions, but most often they are with observational data, rather than in controlled experiments. In this, the design of observational studies in econometrics is similar to the design of studies in other observational disciplines, such as astronomy, epidemiology, sociology and political science. Analysis of data from an observational study is guided by the study protocol, although exploratory data analysis may by useful for generating new hypotheses. Economics often analyzes systems of equations and inequalities, such as supply and demand hypothesized to be in equilibrium. Consequently, the field of econometrics has developed methods for identification and estimation of simultaneous-equation models. These methods are analogous to methods used in other areas of science, such as the field of system identification in systems analysis and control theory. Such methods may allow researchers to estimate models and investigate their empirical consequences, without directly manipulating the system.

One of the fundamental statistical methods used by econometricians is regression analysis. Regression methods are important in econometrics because economists typically cannot use controlled experiments. Econometricians often seek illuminating natural experiments in the absence of evidence from controlled experiments. Observational data may be subject to omitted-variable bias and a list of other problems that must be addressed using causal analysis of simultaneous-equation models.

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