How do you create an econometric model and variables?

Answer 1

There are many approaches to creating an econometric model and choosing relevant variables. Usually a good starting point is having a question in mind that can be explained with data. Suppose for instance you are Lactose intolerant but unaware of this problem. How do you find out what exactly causes digestion problems? You could use an econometric models such as this:

y=b1 x1 + b2 x2

Where y is the number of times you go to the bathroom per day and x1 is the number units of milk you drink per day and x2 is the hours you study per day. At the end of each day, you fill out an excel sheet with the respective numbers, and then after having say 30 observations you estimate the coefficients b1 and b2 (with a statistical software such as excel). Now you should probably get a positive coefficient for b1 (since milk is causing the problems) and a cofficient of zero for b2 since that should not have anything to do with the bathroom visits.

Hope this helps.