Econometric Techniques

Quantitative economic statistical techniques called "econometrics" attempt to model the economy using mathematical and statistical relationships. A comprehensive model of the economy might have hundreds of equations and many variables.

Primary among econometric techniques is "least squares regression analysis" which seeks to establish relationships or "explanatory" variables through equations. A variable which moves similarly to another is said to be "correlated". An equation or "model" that explains much of the movement in interest rates using number of variables like money supply, economic growth or unemployment would be said to be "robust". Of course economists think this when less than 50% of the movement is explained! Another technique is called "time series analysis" which uses the pattern of interest rate movements to predict their future course.

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