Legacy and Later Life of Trygve Haavelmo

Abstract

Haavelmo explained the reason why our world of financial econometrics may be more complicated than some would like to believe. While he offered clarity in the reasons why simultaneity of equations and the probabilistic nature of observations must be further considered, members of the Cowles Commission were only partially successful in their completion of Haavelmo’s agenda. It would take decades to fully digest Haavelmo’s observation, and to develop methods such as Monte Carlo simulations, non-parametric testing tools and tests of causality. However, eventually, the discipline made headway.