Statistical Testing of Business Cycle Theory: The Econometric Method

Abstract

Business cycle theory, in most cases, is originally developed at an abstract level of logical deduction of consequences from an assumed hypothetical structure. This branch of economic theory, unlike some others, is mainly concerned with descriptive instead of normative analysis. Because business cycle theory is abstract and hypothetical, because it attempts to describe real-life processes, it is only natural that economists demand a confrontation of this theory with the facts of actual economic events. Logic alone is not enough to establish such diverse claims as: Investment depends on the rate of change of output.