International Journal of Scientific Research and Engineering Development

An econometric model is a statistical framework that uses economic theory, mathematics, and statistical inference to quantify economic relationships. Unlike the controlled experiments of the physical sciences, econometrics relies on observational data to analyse complex systems where many variables change simultaneously. A key tool is the multiple linear regression model, which estimates how changes in one or more independent (explanatory) variables affect a dependent (explained) variable. This is done while accounting for the influence of other factors. The model's validity and utility are assessed through measures like R-squared (R2) and the statistical significance of its independent variables. These metrics are crucial for determining the model's explanatory power and the reliability of the estimated relationships, guiding economic policymaking and forecasting.