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. |
