36,832 research outputs found
Reformulating empirical macro-econometric modelling
No full textThe policy implications of estimated macro-econometric systems depend on the formulations of their equations, the methodology of empirical model selection and evaluation, the techniques of policy analysis, and their forecast performance. Drawing on recent results in the theory of forecasting, we question the role of 'rational expectations'; criticize a common approach to testing economic theories; show that impulse-response methods of evaluating policy are seriously flawed; and question the mechanistic derivation of forecasts from econometric systems. In their place, we propose that expectations should be treated as instrumental to agents' decisions; discuss a powerful new approach to the empirical modelling of econometric relationships; offer viable alternatives to studying policy implications; and note modifications to forecasting devices that can enhance their robustness to unanticipated structural breaks
Econometric modelling of time series with outlying observations
No full textEconomies are buffeted by natural shocks, wars, policy changes, and other unanticipated events. Observed data can be subject to substantial revisions. Consequently, a “correct” theory can manifest serious mis-specification if just fitted to data ignoring its time-series characteristics. Modelling U.S. expenditure on food, the simplest theory implementation fails to describe the evidence. Embedding that theory in a general framework with dynamics, outliers and structural breaks and using impulse-indicator saturation, the selected model performs well, despite commencing with more variables than observations (see Doornik, 2009b), producing useful robust forecasts. Although this illustration involves a simple theory, the implications are generic and apply to sophisticated theorie
Model identification and non-unique structure
No full textIdentification is an essential attribute of any model’s parameters, so we consider its three aspects of ‘uniqueness’, ‘correspondence to reality’ and ‘interpretability’. Observationally-equivalent overidentified models can co-exist, and are mutually encompassing in the population; correctly-identified models need not correspond to the underlying structure; and may be wrongly interpreted. That a given model is over-identified with all over-identifying restrictions valid (even asymptotically) is insufficient to demonstrate that it is a unique representation. Moreover, structure (as invariance under extended information) need not be identifiable. We consider the role of structural breaks to discriminate between such representations
Testing the Lucas Critique: A Review.
No full textClaims that the parameters of an econometric model are invariant under changes in either policy rules or expectations processes entail super exogeneity and encompassing implications. Super exogeneity is always potentially refutable, and when both implications are involved, the Lucas critique is also refutable. We review the methodological background; the applicability of the Lucas critique; super exogeneity tests; the encompassing implications of feedback and feedforward models; and the role of incomplete information. The approach is applied to money demand in the United States to examine constancy, exogeneity, and encompassing, and reveals the Lucas critique to be inapplicable to the model under analysis
On selecting policy analysis models by forecast accuracy
No full textThe value of selecting the best forecasting model as the basis for empirical economic policy analysis is questioned. When no model coincides with the data generation process, non-causal statistical devices may provide the best available forecasts: examples from recent work include intercept corrections and differenced-data VARs. However, the resulting models need have no policy implications. A ‘paradox’ may result if their forecasts induce policy changes which can be used to improve the statistical forecast. This suggests correcting statistical forecasts by using the econometric model’s estimate of the ‘scenario’ change. An application to UK consumers expenditure illustrates the analysis
Exogeneity and causality in non-stationary economic processes
No full textThe full-text of this book chapter is not available in ORA at this time. Citation: Hendry, D. F. (2004). Exogeneity and causality in non-stationary economic processes. In: Welfe, A. (ed.), New directions in macromodelling, Oxford: Elsevier, pp. 21-48
Fig. 4 in An Unusual Tasmanian Tertiary Basalt Sequence, Near Boat Harbour, Northwest Tasmania
No full textFig. 4. Differentiation Index (DJ.) against 100 AnlAn+Ab (Analyses 1-9), Cassidys Creek-Table Cape volcanic rocks related to Tasmanian basaltic fields. Lherzolite-bearing rocks are circled. Tasmanian olivine melilite nephelinite (dotted line), olivine nephelinite lineage (dot-dashed line), basanite lineage (dashed line), alkali basalt lineage (solid line).Published as part of Sutherland, F. L., Hendry, D. F., Barron, B. J., Matthews, W. L. & Hollis, J. D., 1996, An Unusual Tasmanian Tertiary Basalt Sequence, Near Boat Harbour, Northwest Tasmania, pp. 131-161 in Records of the Australian Museum 48 (2) on page 137, DOI: 10.3853/j.0067-1975.48.1996.285, http://zenodo.org/record/465905
The Encompassing Implications of Feedback versus Feedforward Mechanisms in Econometrics.
No full textSub-sample model selection procedures in general-to-specific modelling
No full textThe full-text of this book chapter is not available in ORA. Citation: Hendry, D. F. & Krolzig, H-M. (2004). Sub-sample model selection procedures in general-to-specific modelling. In: Becker, R. & Hurn, S. (eds.), Contemporary issues in economics and econometrics: theory and application, Cheltenham: Edward Elgar, pp. 53-75
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