Econometric Equations
For example an econometric equation for the demand for office space (in which case the demand for office space would be referred to as the dependent variable) will describe the factors that affect it (the independent variables) and how they affect it (in a linear or non-linear fashion, as reflected in the form of the mathematical equation describing their effect. These equations are estimated through various statistical methods, with the Ordinary Least Squares (OLS)technique being the most commonly used. This technique though refers to linear relationship between the dependent and independent variables. Furthermore, its use implies that some other assumptions are valid regarding the behavior of the dependent variable. If the analyst believes that the independent variables affect the dependent variable in a non-linear fashion then other statistical estimation techniques need to be used.
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