# What are econometrics and their applications? In the study of quantitative finance and financial risk, it is essential to have notions about econometrics. Undoubtedly, it is one of the most important subjects of the economy, and we will know why. Today, having knowledge thanks to, for example, a master’s degree in econometrics, makes us a very interesting profile for the market. That means that our work possibilities multiply. But do you want to know more about econometrics and why is it so important? Follow us!

## What is econometrics?

Econometrics is a branch of economics that uses mathematical and statistical methods along with linear programming and game theory to analyze, interpret and make predictions about economic systems. But understanding econometrics with this idea has been a long process involving several experts in economics.

For example, Ragnar Frisch considered econometrics as the union of statistics, mathematics, and economic theory. On the other hand, for Klein, his main objective was to give empirical content to the a priori reasoning of the economy.

Instead, Carlos Sabino established it as a term that designates the application of mathematical and statistical techniques to solving problems in the economy.

## More approximations to the definition of econometrics

Apart from these definitions of theorists, we can understand econometrics as a branch of the economy that is responsible for extracting values ​​in an economic model from another already existing with real economic variables. It relies on the use of mathematical and statistical analysis to extract them.

In addition to extracting values, it is responsible for checking the degree of validity of these models to explain the economy of an economic agent, such as a market sector or even a whole country. You can also measure their evolution, predict future values ​​and follow economic measures based on desired objectives. For example, to be able to apply mathematical optimization techniques to rationalize the use of resources within a company, or to decide what values ​​should be adopted by the fiscal policy of a government to achieve certain levels of tax collection.

As we can see, there have been different ways of seeing econometrics throughout history.

## What is econometrics for?

The purpose of econometrics is to explain one variable in terms of others, which is why econometric models are established that allow adding the necessary specifications to prove results empirically. First of all, a model is defined in which the variables and the structural parameters that will accompany them are collected, as well as the equations and their mathematical formulation

Once the model is defined, an estimation is made using different statistical methods. The most frequent models are the determinists, and within them, the most frequent is the linear regression. It consists of a numerical analysis technique framed within the mathematical optimization by means of which, through the dependent variable and the independent variable, it is a matter of finding a continuous function that allows a better adjustment according to the criterion of the least squared error.

However, there are other models, such as non-deterministic or stochastic models. These allow relating the exogenous and endogenous variables even though there is a certain degree of random error. All these elements are studied in a master in econometrics.

Then we proceed to verify and contrast the information provided by the model by subjecting it to some statistical contrasts in order to quantify in statistical terms its validity. Finally, the model is applied to the purpose with which it was built, which allows structural analysis, predict future values ​​of economic variables, simulate different possibilities of the exogenous variables, that is, those that affect the data we want. obtain and simulate optimal values ​​of instrumental variables of economic and business policy.

## Conclusions

It is evident that the application of econometrics is really useful in any aspect. But it is of greater application, if it fits, in the world of the finances, since it allows by means of the econometric models the prediction of variables and data of great value. Above all, in the field of quantitative finance. For this reason, it is really viable to study for a master’s degree in econometrics.

For all this, a master in econometrics is a specialization that can be really useful in the world of work. Along with technologies, data prediction is a trend that is rapidly positioning in the markets. And he has come wanting to stay.

Are you determined to embark on your studies of a master in Financial Risk Management? Do you feel ready to get down to work? We will be waiting for you in our master and we are here for what you need. Contact us!

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