DefinePK

Abstract

The availability of computer packages has put a variety of econometric techniques within the reach of nearly everyone. The sophisticated mathematics and modern technology required lends a magical quality to these tools. One has the feeling that if only one could pronounce the right magic word (or, use the right regression technique) all econometric problems would disappear. The truth, as one learns from experience,
is far from this fantasy . Because strong assumptions are made by econometric theory, it is not at all uncommon for the most sophisticated of techniques to generate the crudest of errors. Therefore it is extremely important to understand :

a) The overall limitations of econometric techniques: what can and cannot be done; and
b) factors not included in the model (such as politics, strikes, outliers) which may influence results.