Mathematical Methods for Economists

• Although economists use a wide variety of mathematical techniques, they can be grouped into strict mathematical methods and statistical methods. Strict mathematical methods have been used for a long time, but statistical methods are becoming increasingly important with the availability of high-speed computers. These techniques for economists are known as econometrics.

Linear Regression Methods

• Regression refers to a group of statistical techniques that model one variable, called the output variable or the dependent variable, as a function of one or more other variables, called input variables or independent variables. Linear regression is used when the dependent variable is continuous; for example, gross domestic product.

Nonlinear Regression

• When the dependent variable is not continuous, other methods must be used. If it is dichotomous--e.g., is the economy in a depression?--ordinal--e.g., is the economy growing quickly, growing slowly, stable or shrinking--or nominal--e.g, do you work in manufacturing, service, or other?--then logistic regression of various kinds can be used. If the dependent variable is a count--e.g., how many months of growth have there been?--then Poisson or negative binomial regression can be used.

Time Series

• Time series is a field of statistics dealing with relatively long time series, at least 20 periods. Examples in economics would include stock market prices or gross domestic product over a long period.

Calculus

• Calculus can be used to find the maxima and minima of functions. In economics, we could use calculus to find the maxima of profit as a function of marginal revenue and marginal cost.