Then the model will consist of the equation where Ct is consumer spending in month t, Yt-1 is income during the previous month, and et is an error term measuring the extent to which the model cannot fully explain consumption.
Then one objective of the econometrician is to obtain estimates of the parameters a and b; these estimated parameter values, when used in the model's equation, enable predictions for future values of consumption to be made contingent on the prior month's income.
In econometrics, as in statistics in general, it is presupposed that the quantities being analyzed can be treated as random variables.
A large part of econometrics is the study of methods for selecting models, estimating them, and carrying out inference on them.
The most common econometric models are structural, in that they convey causal and counterfactual information,[2] and are used for policy evaluation.