Application of econometrics in business world
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The document outlines ten applications of econometrics in the business world, including measuring health outcomes related to insurance coverage, analyzing the impact of dividend announcements on stock prices, and predicting revenue from marketing campaigns. It also discusses how econometric models can assess effects such as tax credits on R&D, pollution levels from cap-and-trade policies, and the influences of immigration and minimum wage laws on the labor market. Additionally, it highlights applications in finance, including capital asset pricing and event analysis.
Application of econometrics in business world
- 1. Application of econometrics in business world BY HUDA DURRANI
- 2. Ten application of econometrics Measuring the association between insurance coverage individuals health outcomes Deriving the effect of dividend announcement on stock market prices and investor behavior Predicting revenue increase in response to a marketing compaign Calculating the impact of a firm’s tax credits on R&D expenditure Estimating the impact of cap-and-trade policies on pollution levels Forecasting macroeconomic indicator
- 3. Cont. Estimating the impact of immigration on native workers Identifying the factors that affect a firms entry and exit into a market Determining the influence of minimum wage laws on employment levels Finding the relation between management techniques and worker productivity
- 4. Measuring the association between insurance coverage and individual health outcomes Increasing the availability (and affordability) of medical insurance coverage Health economists may use econometric models with aggregate data (from countries) on medical coverage rates and health outcomes or use individual-level data with qualitative measures of insurance coverage and health status.
- 5. Deriving the effect of dividend announcements on stock market prices and investor behavior Dividends represent the distribution of company profits to its shareholders. Sometimes the announcement of a dividend payment can be viewed as good news when shareholders seek investment income, but sometimes they can be viewed as bad news when shareholders prefer reinvestment of firm profits through retained earnings. The net effect of dividend announcements can be estimated using econometric models and data of investor behavior.
- 6. Predicting revenue increases in response to a marketing campaign The field of marketing has become increasingly dependent on empirical methods. A marketing or sales manager may want to determine the relationship between marketing efforts and sales. Which type of advertising (radio, TV, newspaper, and so on) yields the largest impact on sales? These types of questions can be addressed with econometric techniques.
- 7. Calculating the impact of a firm's tax credits on R&D expenditure Tax credits for research and development (R&D) are designed to provide an incentive for firms to engage in activities related to product innovation and quality improvement. Econometric estimates can be used to determine how changes in the tax credits influence R&D expenditure and how distributional effects may produce tax-credit effects that vary by firm size.
- 8. Estimating the impact of cap-and- trade policies on pollution levels Environmental economists have discovered that combining legal limits on emissions with the creation of a market that allows firms to purchase the "right to pollute" can reduce overall pollution levels. Econometric models can be used to determine the most efficient combination of state regulations, pollution permits, and taxes to improve environmental conditions and minimize the impact on firms.
- 9. Forecasting macroeconomic indicator Effect of monetary policy on the aggregate performance of the economy
- 10. Estimating the effect of immigration on native worker Immigration increases the supply of worker Wages will decrease for all workers Immigration has positive demand effect
- 11. Identifying the factors that effect a firms entry and exit into a market Existing profit levels Fixed costs Government regulations
- 12. Determining the minimum wage laws on employment levels Price floor Depends on demand and supply cuve
- 13. Finding the relationship between management techniques and worker productivity
- 14. Econometrics applications in finance Capital assets pricing theory Arbitrage pricing theory Term structure of interest rate Event analysis