Skip to main content
SpringerLink
Log in
Book cover

New Trends in Macroeconomics pp 53–77Cite as

Bridging the Gap: Linking Economics and Econometrics

  • Chapter

Summary

The marked gap that exists between macroeconomic theory models and applied econometric findings arises because most observed data variability in macro-econometrics is due to factors that are absent from economic theories, but which econometric models have to tackle (particularly various non-stationarities). Ceteris paribus may be fine for theoretical reasoning, but is unacceptable for empirical modelling. A ‘minor influence’ theorem is needed instead which can only be established empirically. Thus, the chapter considers an automatic selection approach to bring objectivity and credibility to empirical econometric modelling.

Keywords

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Financial support from the ESRC under a Professorial Research Fellowship, RES051270035, is gratefully acknowledged. I am indebted to Sule Akkoyunlu, Gunnar Bårdsen, Øyvind Eitrheim, Vivien Hendry, Eilev Jansen, Katarina Juselius, Søren Johansen, Sophocles Mavroeidis, Grayham Mizon, Ragnar Nymoen, Tore Schweder, Bernt Stigum and participants at the Econometric Methodology Conference at the Norwegian Academy of Science and Letters, Oslo for helpful comments on an earlier draft.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (Canada)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   84.99
Price excludes VAT (Canada)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   109.99
Price excludes VAT (Canada)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD   109.99
Price excludes VAT (Canada)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aghion P, Frydman R, Stiglitz J, Woodford M (2002) Knowledge, Information and Expectations in Modern Macroeconomics. Princeton, New Jersey: Princeton University Press

    Google Scholar 

  2. Ahumada H (1985) An encompassing test of two models of the balance of trade for Argentina. Oxford Bulletin of Economics and Statistics 47: 51–70

    Google Scholar 

  3. Bean CR (1981) An econometric model of investment in the United Kingdom. Economic Journal 91: 106–121

    Google Scholar 

  4. Cartwright N (2003) In favour of laws that are not ceteris paribus after all. Mimeo, Department of Philosophy, Logic and Scientific Method, London School of Economics

    Google Scholar 

  5. Clements MP, Hendry DF (1998) Forecasting economic time series. Cambridge: Cambridge University Press

    Google Scholar 

  6. Clements MP, Hendry DF (1999) Forecasting non-stationary economic time series. Cambridge, Mass.: MIT Press

    Google Scholar 

  7. Clements MP, Hendry DF (1999) On winning forecasting competitions in economics. Spanish Economic Review 1: 123–160

    CrossRef  Google Scholar 

  8. Clements MP, Hendry DF (2001) Explaining the results of the M3 forecasting competition. International Journal of Forecasting 17: 550–554

    Google Scholar 

  9. Clements MP, Hendry DF (2001) An historical perspective on forecast errors. National Institute Economic Review 177: 100–112

    CrossRef  Google Scholar 

  10. Clements MP, Hendry DF (2002) Explaining forecast failure in macroeconomics. In Clements MP, Hendry DF (eds) A companion to economic forecasting. Oxford: Blackwells

    Google Scholar 

  11. Crafts NFR (1997) Endogenous growth: Lessons for and from economic history. In Kreps DM, Wallis KF (eds) Advances in Economics and Econometrics: Theory and Applications. Seventh World Congress. Vol. 2. Cambridge: Cambridge University Press

    Google Scholar 

  12. Doornik JA (2001) Object-oriented matrix programming using Ox. London: Timberlake Consultants Press. 4th edition

    Google Scholar 

  13. Eitrheim Ø, Husebø TA, Nymoen R (1999) Equilibrium-correction versus differencing in macroeconometric forecasting. Economic Modelling 16: 515–544

    CrossRef  Google Scholar 

  14. Engle RF, Granger CWJ (1987) Cointegration and error correction: Representation, estimation and testing. Econometrica 55: 251–276

    MathSciNet  Google Scholar 

  15. Engle RF, Hendry DF, Richard JF (1983) Exogeneity. Econometrica 51: 277–304. Reprinted in Hendry DF (ed) Econometrics: Alchemy or science? Oxford: Blackwell Publishers, 1993, and Oxford University Press, 2000; and in Ericsson NR, Irons JS (eds) Testing exogeneity, Oxford: Oxford University Press, 1994

    MathSciNet  Google Scholar 

  16. Ericsson NR (2004) Econometric modeling. Oxford: Oxford University Press. Forthcoming

    Google Scholar 

  17. Ericsson NR, Hendry DF, Prestwich KM (1998) The demand for broad money in the United Kingdom, 1878–1993. Scandinavian Journal of Economics 100: 289–324

    CrossRef  Google Scholar 

  18. Escribano A (2002) Non-linear error correction models. Mimeo, Universidad Carlos III, Madrid

    Google Scholar 

  19. Faust J, Whiteman CH (1997) General-to-specific procedures for fitting a data-admissible, theory-inspired, congruent, parsimonious, encompassing, weakly-exogenous, identified, structural model of the DGP: A translation and critique. Carnegie-Rochester Conference Series on Public Policy 47: 121–161

    Google Scholar 

  20. Favero C, Hendry DF (1992) Testing the Lucas critique: A review. Econometric Reviews 11: 265–306

    Google Scholar 

  21. Feige EL, Pearce DK (1976) Economically rational expectations. Journal of Political Economy 84: 499–522

    Google Scholar 

  22. Friedman M (1957) A Theory of the Consumption Function. Princeton: Princeton University Press

    Google Scholar 

  23. Hall RE (1978) Stochastic implications of the life cycle-permanent income hypothesis: Evidence. Journal of Political Economy 86: 971–987

    Google Scholar 

  24. Hendry DF (1995) Dynamic econometrics. Oxford: Oxford University Press

    Google Scholar 

  25. Hendry DF (1995) Econometrics and business cycle empirics. Economic Journal 105: 1622–1636

    Google Scholar 

  26. Hendry DF (1999) An econometric analysis of US food expenditure, 1931–1989. In Magnus JR, Morgan MS (eds) Methodology and tacit knowledge: Two Experiments in econometrics, Chichester: John Wiley and Sons.

    Google Scholar 

  27. Hendry DF (2000) Econometrics: Alchemy or Science? Oxford: Oxford University Press. New Edition

    Google Scholar 

  28. Hendry DF (2000) Epilogue: The success of general-to-specific model selection. In Hendry DF (ed) Econometrics: Alchemy or Science? Oxford University Press

    Google Scholar 

  29. Hendry DF (2000) On detectable and non-detectable structural change. Structural Change and Economic Dynamics 11: 45–65. Reprinted in Hagemann H, Landesman M, Scazzieri (eds.) The Economics of Structural Change, Edward Elgar, Cheltenham, 2002

    CrossRef  Google Scholar 

  30. Hendry DF (2001) Modelling UK inflation, 1875–1991. Journal of Applied Econometrics 16: 255–275

    Google Scholar 

  31. Hendry DF (2002) Forecast failure, expectations formation, and the Lucas critique. Annales d’Économie et de Statistique 67–68: 21–40

    Google Scholar 

  32. Hendry DF, Ericsson NR (1991) An econometric analysis of UK money demand in Monetary Trends in the United States and the United Kingdom’ by Milton Friedman and Anna J Schwartz. American Economic Review 81: 8–38

    Google Scholar 

  33. Hendry DF, Krolzig H-M (2001) Automatic econometric model selection. London: Timberlake Consultants Press

    Google Scholar 

  34. Hendry DF, Krolzig H-M (2004) Resolving three ‘intractable’ problems using a Gets approach. Oxford Bulletin of Economics and Statistics 66: 799–810

    CrossRef  Google Scholar 

  35. Hendry DF, Krolzig H-M (2004) We ran one regression. Unpublished paper, Economics Department, University of Oxford

    Google Scholar 

  36. Hendry DF, Krolzig H-M (2005) The properties of automatic Gets modelling. Economic Journal, forthcoming

    Google Scholar 

  37. Hendry DF, Mizon GE (2000) Reformulating empirical macro-econometric modelling. Oxford Review of Economic Policy 16: 138–159

    CrossRef  Google Scholar 

  38. Hendry DF, Santos C (2005) Regression models with data-based indicator variables. Oxford Bulletin of Economics and Statistics, forthcoming

    Google Scholar 

  39. Hildenbrand W (1994) Market demand: Theory and empirical evidence. Princeton: Princeton University Press

    Google Scholar 

  40. Hildenbrand W (1998) How relevant are the specifications of behavioural relations on the micro-level for modelling the time path of population aggregates? European Economic Review 42: 437–458

    CrossRef  Google Scholar 

  41. Hoover KD, Perez SJ (1999) Data mining reconsidered: Encompassing and the generalto-specific approach to specification search. Econometrics Journal 2: 167–191

    Google Scholar 

  42. Hoover KD, Perez SJ (2004) Truth and robustness in cross-country growth regressions. Oxford Bulletin of Economics and Statistics 66: forthcoming

    Google Scholar 

  43. Judge GG, Bock ME (1978) The Statistical implications of pre-test and Stein-Rule estimators in econometrics. Amsterdam: North Holland Publishing Company

    Google Scholar 

  44. Juselius K (1993) VAR modelling and Haavelmo’s probability approach to econometrics. Empirical Economics 18: 595–622

    CrossRef  Google Scholar 

  45. Kennan J (1979) The estimation of partial adjustment models with rational expectations. Econometrica 47: 1441–1455

    MATH  MathSciNet  Google Scholar 

  46. Keynes JM (1939) Professor Tinbergen’s method. Economic Journal 44: 558–568. Reprinted in Hendry DF, Morgan MS (eds) The foundations of econometric analysis, Cambridge: Cambridge University Press, 1995

    Google Scholar 

  47. Kirman A (1989) The intrinsic limits of economic theory: The emperor has no clothes. Economic Journal 99: 126–139

    Google Scholar 

  48. Kirman A (1995) The evolution of economic theory. In d’Autume A, Cartelier J (eds) L’Economie devient-elle une science dure?, Paris: Economica. Reprinted in English as: Is economics becoming a hard science? Edward Elgar, 1997.

    Google Scholar 

  49. Koopmans TC (1947) Measurement without theory. Review of Economics and Statistics 29: 161–179

    Google Scholar 

  50. Kydland FE, Prescott EC (1990) Business cycles: Real facts and a monetary myth. Federal Reserve Bank of Minneapolis, Quarterly Review 14: 3–18

    Google Scholar 

  51. Kydland FE, Prescott EC (1991) The econometrics of the general equilibrium approach to business cycles. Scandinavian Journal of Economics 93: 161–178

    Google Scholar 

  52. Leamer EE (1978) Specification searches. Ad-Hoc inference with non-experimental data. New York: John Wiley

    Google Scholar 

  53. Leamer EE (1983) Let’s take the con out of econometrics. American Economic Review 73: 31–43. Reprinted in Granger CWJ (ed) Modelling economic series, Oxford: Clarendon Press, 1990

    Google Scholar 

  54. Lovell MC (1983) Data mining. Review of Economics and Statistics 65 1–12

    Google Scholar 

  55. Magnus JR, Morgan MS (1999) Methodology and tacit knowledge: Two Experiments in econometrics. Chichester: John Wiley and Sons.

    Google Scholar 

  56. Makridakis S, Hibon M (2000) The M3-competition: Results, conclusions and implications. International Journal of Forecasting 16: 451–476

    CrossRef  Google Scholar 

  57. Massmann M (2001) Co-breaking in macroeconomic time series. Unpublished paper, Economics Department, Oxford University

    Google Scholar 

  58. Morgan MS (1990) The history of econometric ideas. Cambridge: Cambridge University Press

    Google Scholar 

  59. Nerlove M (1983) Expectations, plans, and realizations in theory and practice. Econometrica 51: 1251–1279

    Google Scholar 

  60. Nymoen R (2002) Faulty watch towers: Structural models in Norwegian monetary policy analysis. Unpublished paper, University of Oslo

    Google Scholar 

  61. Pagan AR (1987) Three econometric methodologies: A critical appraisal. Journal of Economic Surveys 1: 3–24. Reprinted in Granger CWJ (ed) Modelling economic series, Oxford: Clarendon Press, 1990.

    Google Scholar 

  62. Popper KR (1963) Conjectures and refutations. New York: Basic Books

    Google Scholar 

  63. Sala-i Martin XX (1997) I have just run two million regressions. American Economic Review 87: 178–183

    Google Scholar 

  64. Samuelson PA (1947) Foundations of economic analysis. Harvard: Harvard University Press

    Google Scholar 

  65. Schwarz G (1978) Estimating the dimension of a model. Annals of Statistics 6: 461–464

    MATH  MathSciNet  Google Scholar 

  66. Smets F, Wouters R (2002) An estimated stochastic dynamic general equilibrium model of the Euro area. ECB Working Paper No 171, European Central Bank, Frankfurt

    Google Scholar 

  67. Spanos A (1989) On re-reading Haavelmo: A retrospective view of econometric modeling. Econometric Theory 5: 405–429

    Google Scholar 

  68. Spanos A (1995) On theory testing in econometric modelling with non-experimental data. Journal of Econometrics 67: 189–226

    CrossRef  MATH  MathSciNet  Google Scholar 

  69. Stiglitz J (2003) Is Keynes dead? Reviving a sensible macroeconomics. Clarendon lectures, Department of Economics, University of Oxford

    Google Scholar 

  70. Stock JH, Watson MW (1996) Evidence on structural instability in macroeconomic time series relations. Journal of Business and Economic Statistics 14: 11–30

    Google Scholar 

  71. Summers LH (1991) The scientific illusion in empirical macroeconomics. Scandinavian Journal of Economics 93: 129–148

    Google Scholar 

  72. Tobin J (1950) A statistical demand function for food in the U.S.A. Journal of the Royal Statistical Society, Series A 113: 113–141

    Google Scholar 

  73. Tobin J (1952) A survey of the theory of rationing. Econometrica 26: 24–36

    MathSciNet  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Economics Department, Oxford University, Manor Road Building, Manor Road, Oxford, OX1 3UQ, UK

    David F. Hendry

Authors
  1. David F. Hendry
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. BETA/CNRS, Faculty of Economics, University of Strasbourg I, 61 Avenue de la Forêt Noire, 67085, Strasbourg Cedex, France

    Claude Diebolt (Directeur de Recherche au CNRS) (Directeur de Recherche au CNRS)

  2. Department of Economics, University of Macedonia, Egnatia Street 156, 54006, Thessaloniki, Greece

    Catherine Kyrtsou

Rights and permissions

Reprints and permissions

Copyright information

© 2005 Springer-Verlag Berlin Heidelberg

About this chapter

Cite this chapter

Hendry, D.F. (2005). Bridging the Gap: Linking Economics and Econometrics. In: Diebolt, C., Kyrtsou, C. (eds) New Trends in Macroeconomics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-28556-3_4

Download citation

Publish with us

Policies and ethics

search

Navigation