Chapter

Predictive Failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money

David F. Hendry

in Econometrics: Alchemy or Science?

Published in print October 2000 | ISBN: 9780198293545
Published online November 2003 | e-ISBN: 9780191596391 | DOI: http://dx.doi.org/10.1093/0198293542.003.0012
 Predictive Failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money

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This tests the DHSY approach in another subject‐matter area (money demand) to investigate its ability to produce improved models and to encompass previous findings. ‘Simple‐to‐general’ modelling methods are criticized and contrasted with the outcome achieved by general‐to‐simple, sequentially reducing to parsimonious, constant, and encompassing equations. Contemporaneous conditioning is based on weak exogeneity and constancy is stressed as a model‐selection criterion. A successful test of the selected error‐correction transactions’ demand for money model on new data is reproduced from The Econometric Analysis of Economic Time Series.

Keywords: error‐correction mechanism; general‐to‐simple modelling; model mis‐specification; model selection; predictive failure; simple‐to‐general modelling; structural breaks; transactions demand for money; weak exogeneity

Chapter.  12823 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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