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What is Mathematical Economics

Mathematical economics is a model of economics that utilizes math principles and methods to create economic theories and to investigate economic quandaries. Mathematics permits economists to conduct quantifiable tests and create models to predict future economic activity.

Advancements in computing power, big data techniques and other advanced mathematics applications have played a large part in making quantitative methods a standard element of economics. These elements are all backed by scientific methods advancing the study of economics.

The marriage of statistical methods, mathematics and economic principles has created an entirely new branch of economics called econometrics.

BREAKING DOWN Mathematical Economics

Mathematical economics relies on statistical observations to prove, disprove and predict economic behavior. Although the discipline is heavily influenced by the bias of the researcher, mathematics allows economists to explain observable phenomenon and provides the backbone for theoretical interpretation.

Economists often wrestle with competing models capable of explaining the same recurring relationship called an empirical regularity, but few models provide definitive clues to the size of the association between central economic variables. From Main Street to Wall Street to Washington, this is what matters most to policymakers. When setting monetary policy, for example, central bankers want to know the likely impact of changes in official interest rates on inflation and the growth rate of the economy. It is in cases like this that economists turn to econometrics.