Analysts use statistical tools to try to model the economy and get an indication on interest rate movement. The resulting equations and variables are called econometric techniques.
Econometric Techniques
Quantitative economic statistical techniques called “econometrics” are tools that attempt to model the economy using mathematical and statistical relationships.
A comprehensive model of the economy might have hundreds of equations and many variables, including inflation, wages and currency.
Primary among econometric techniques is “least squares regression analysis,” which seeks to establish relationships or “explanatory” variables through equations.
A variable that moves similarly to another is said to be “correlated.” An equation or “model” that explains much of the movement in interest rates using a 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 per cent of the movement is explained!
Another type of econometric techniques, called “time series analysis,” uses the pattern of interest rate movements to predict their future course.
