Econometric model Definition
A set of mathematical equations that depict real economic conditions both in the present and in the future. Econometric models are used to determine the economic effects of changes in government policy and regulation, changes in interest rates, tax law, wage levels, population trends and many other factors. All the factors influence each other, so changing one factor will have a chain reaction effect on the other factors. Data showing the effects and relationships of each factor to the other factors are entered into a computer, programmed with the model's equations. Using the computerized model, analysts can determine the probable economic consequences of various regulatory or business options.