Methods of Quantitative Economics
Quantitative economics is all about quantities — in other words, numbers. It's economics with extra shots of number-crunching, including data analysis and statistical skills. Financial analysts, economic forecasters, actuaries and other finance and business professionals you deal with have probably been trained in quantitative methods in economics.
Quantitative economics relies on hard facts and figures to study the economy, using statistical analysis and historical data patterns. Many economists consider qualitative analysis, which looks at individuals' subjective preferences and intentions, as less reliable.
Specialists in quantitative methods in economics look at how society produces, distributes and consumes goods and services. Their range of interest includes inflation, unemployment, labor, taxes, international trade and social issues that affect the economy. Quantitative analysis in economics relies heavily on data such as statistics, budgets, cost analyses and cost projections.
Quantitative methods in economics include:
- Data analysis
- Gathering, tabulating and manipulating data
- Finding and testing relationships: Is it coincidence that sales increased when prices dropped, or is it cause and effect?
- Using statistical methods to test hypotheses and make projections. If statistics show only 20% of startups in your industry succeed, what factors can make you the exception?
A list of quantitative methods in economics makes it sound as if the quantitative economics definition is the same as conventional economics. Isn't studying statistics, crunching numbers and looking for related factors what every economist does?
Not entirely, but professionals in the field rely heavily on quantitative analysis in economics work. Much of economics deals with numbers, from the effects of rising interest rates to the probability of a recession. Qualitative analysis, which relies less on numbers, is widely considered less reliable.
Suppose an economist is researching wages in your industry. Quantitative analysis might look at how wages relate to the economy or the demand for skilled employees vs. the number of candidates. A qualitative approach would be to talk to business owners and ask the reasons they set wages at the level they do. Their opinions are subjective but may provide valuable insight.
Both qualitative and quantitative methods in economics may be useful for your business. Suppose you're considering marketing a new product line, and you want to know the odds of success, the best price to hook your target audience and answers to other important questions.
Quantitative research looks at the numbers: costs of the new line, the necessary price to recover your costs and turn a profit and what price consumers can afford to pay. Quantitative methods in economics may use precise surveys — questions with A, B and C answers, for example, with a large group of respondents to make the results statistically reliable.
Qualitative research is more into the people and what would make them feel eager to buy your product. Research prioritizes focus groups or one-on-one interviews where people are free to talk about what they'd like from your new line or how they feel about your company. Many businesses use a mix of qualitative and quantitative analysis to make decisions.
To make quantitative methods in economics work requires more than just good math and statistics skills. Numbers are the heart of the quantitative economics definition, but they're not all of it.
- Economics theory: Someone working for a quantitative economics degree learns the basic theories and concepts of macroeconomics and microeconomics.
- Communications skills: The best analysis in the world won't be any good if an economist can't explain the results. Good written and oral communication is a must.
- Finance and politics: Knowing how money moves through the economy and how banks operate helps quantitative economics see the big picture. Understanding the government's role is also important.
- Modeling and experimental design: If data is bad, the data analysis won't be good. Quantitative economists have to learn how to make projections or conduct research to generate accurate results.