Book

Econometrics: Alchemy or Science?

David F. Hendry

Published in print October 2000 | ISBN: 9780198293545
Published online November 2003 | e-ISBN: 9780191596391 | DOI: http://dx.doi.org/10.1093/0198293542.001.0001
Econometrics: Alchemy or Science?

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This collection of published papers records the development of an approach to econometric modelling that has reached a highly successful stage. The methodology of modelling ‘observational data’, as opposed to experimental data, which can be replicated, is analysed to highlight the fundamental flaws in various approaches, and the possibilities of others. Criteria for model adequacy are formulated (congruence and encompassing), and alternative approaches to building empirical models are compared on their ability to deliver such models. A typology of models elucidates their properties, and a taxonomy of information sources clarifies testing. Estimation is summarized by an estimator generating equation. The value of exploring the development path is to reveal by attempted applications why many widely used approaches are inadequate. The outcome is to demonstrate the viability of a general‐to‐specific approach that commences from a specification deemed more than adequate to characterize the evidence, and simplifies to a parsimonious representation that captures the main factors. By artificial Monte Carlo simulations on experiments designed by others, the success of that approach is established, leading to automatic model selection by software that can outperform practitioners.

Keywords: automatic model selection; congruence; econometric methodology; encompassing; estimator generating equation; exogeneity; general‐to‐specific modelling; Monte Carlo simulations; reduction; taxonomy of information

Book.  560 pages.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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Table of Contents

Introduction in Econometrics: Alchemy or Science?

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Econometrics – Alchemy or Science? in Econometrics: Alchemy or Science?

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Dynamic Specification in Econometrics: Alchemy or Science?

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