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LSE and Econometrics

Abstract

Given Lionel Robbins’s scepticism about the value of regression analysis, early LSE contributions to econometrics came from members of the Statistics Department, such as Arthur Bowley and Roy Allen. Much later, with the arrival of Bill Phillips, Rex Bergstrom, Denis Sargan and the graduate students he trained, the School developed the leading econometrics group in the UK for a time, with a distinctive ‘LSE Tradition in Econometrics’. This involved both econometric theory and methodology. With the retirement of Sargan and David Hendry’s move to Oxford, the econometric emphasis at LSE changed under Peter Robinson, with important applied econometric work being carried out across several of the School’s research institutions.

Keywords

  • Bill Phillips
  • Denis Sargan
  • David Hendry
  • Peter Robinson
  • LSE Tradition in Econometrics

I am grateful to Olav Bjerkholt, Sue Donnelly, Charles Goodhart, Vassilis Hajivassiliou, Javier Hidalgo, David Hendry, Sue Howson, Richard Layard, Peter Phillips, Steve Pischke, Peter Robinson, Nigel Rogers and Marcia Schafgans for helpful comments. Since I did not follow all of their suggestions, I remain responsible for all sins of commission and omission.

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Notes

  1. 1.

    The extent of Robbins’s knowledge of statistical theory is discussed in Thomas (2009: 411–412), where the evidence suggests that he did not take the theoretical section of the compulsory course in statistics which he should have attended as an undergraduate when studying at LSE.

  2. 2.

    See Chapter 8 in this volume for an evaluation of Bowley and Chapter 20 for an assessment of Allen.

  3. 3.

    See Cowles Commission for Research in Economics (1939). I am grateful to Sue Howson and Olav Bjerkholt for bringing Allen’s connections with the Cowles Commission to my attention.

  4. 4.

    Despite the close links reported above between the statisticians at the Cowles Commission and the Econometric Society, it seems that the first LSE academic to publish an article in Econometrica with the word ‘econometric’ in the title was an economist, Victor Edelberg (Edelberg 1936). A second article with ‘econometric’ in the title was Edelberg (1940). Edelberg was appointed as an Assistant (what would today be called a Teaching Assistant) in the Economics Department in 1935, but in the early 1940s he had a severe mental breakdown from which he never really recovered (see Howson 2011: 254 and Thomas, forthcoming).

  5. 5.

    The outflow of academics from both institutions meant that teaching duties fell to a relatively small number of teachers, and as a result, students from LSE and Cambridge shared courses. According to the Calendar 1942/1943, one of the shared courses offered in the summer term by Rothbarth was a course of ten lectures under the title ‘Introduction to Econometrics’. The course was offered for a second time in the summer term of the following session (LSE 1942, 1943). Erwin Rothbarth came to LSE with one of the first bursaries for students who had been displaced from Germany, graduated in 1936 and carried out research at the school until 1938, when he moved to Cambridge as a research assistant to Keynes working on national income statistics. He returned to Cambridge from internment to teach but volunteered for the British Army and was killed in Holland in November 1944. So far, I have not been able to obtain any information on what was taught on the Rothbarth course. However, perhaps one may speculate from the fact that he reviewed the second volume of Tinbergen’s League of Nations study (Rothbarth 1941) and, in an obituary of Rothbarth, the authors wrote: ‘But his most striking achievement was perhaps that he made himself a master of the new mathematical technique of writers of econometrics, such as Slutsky, Frisch, Koopmans and Tinbergen, and adapted their methods for his own work’ (Champernowne and Kaldor 1945: 131). See also Cuyvers (1983, 19831984) and Toporowski (2013: 122–124).

  6. 6.

    For an account of Allen’s important contributions to economic theory, see Chapter 20 in this volume.

  7. 7.

    In 1952, Penrice left LSE for a distinguished career in the UK Civil Service, the OECD and the IMF.

  8. 8.

    Dr. George Morton was a mathematician who taught game theory and linear programming. It is interesting to note that the proportion of the reading list devoted to those two topics expanded during the period when he was involved in teaching the course.

  9. 9.

    See Gilbert (1989) for a further discussion of the teaching of econometrics during this period.

  10. 10.

    James Durbin and Denis Sargan were both undergraduates at St. John’s College, Cambridge, in the 1940s. Durbin was invited back to Cambridge in 1948 by Richard Stone to work in the Department of Applied Economics. At the time, there was a good deal of research going on there on time series problems, with Guy Orcutt and Donald Cochrane working on their test and transformation for dealing with first-order (AR1) autocorrelated errors. Durbin worked on the problem with Geoffrey Watson, and this led to the development of the Durbin–Watson test. His interest in time series problems led to Durbin being appointed as an Assistant Lecturer in the Statistics Department at LSE and his involvement with econometrics teaching and research. For a full account of Durbin’s work at LSE, see Chapter 25 in this volume.

  11. 11.

    See Chapter 23 for more information on Phillips and the Phillips Machine. For an excellent biography of Phillips and a non-technical account of his research and importance, see Bollard (2016). See also Phillips (2000).

  12. 12.

    While continuous time modelling was largely ignored elsewhere, Rex Bergstrom was influenced by Phillips in his work in this area and both Peter Phillips and Clifford Wymer worked on continuous time modelling as PhD students at LSE (see Mizon 1995).

  13. 13.

    Other members of the group were Chris Archibald, Bernard Corry, Kurt Klappholz, Kelvin Lancaster, Maurice Peston and (later) Max Steuer.

  14. 14.

    Kelvin Lancaster was an economic theorist who explored the possibility of making testable predictions in qualitative economics (see Lancaster 1962), while Bernard Corry published empirical studies of the labour market (see Corry 1961).

  15. 15.

    The departure of this group of younger members of the staff led to a sense of disappointment on the part of some of the MSc students and was reflected satirically in one of a number of similar items performed in a cabaret at one of the Staff-Student Weekend Schools held in the 1960s: ‘Where have all the Great Men gone?’, was the lament, with Robbins being blamed for driving them away.

  16. 16.

    See Backhouse (1997) for a discussion of changes that took place at LSE in the context of developments at other UK universities. He notes (p. 44) that Birmingham University introduced an MSocSc degree in 1952, which predated the developments at LSE. The driving forces at Birmingham were Terence Gorman (there from 1949 to 1962), Frank Hahn (1948–1960) and Alan Walters (1952–1968). They had already transformed undergraduate teaching at Birmingham, with courses in ‘Mathematical Economics and Econometrics’ and a compulsory individual ‘Quantitative Economics Project’ for third-year students. All three later moved to LSE.

  17. 17.

    My irreverent comment at the time was that it reminded me of the confusion in the Politburo after the death of Stalin.

  18. 18.

    Rex Bergstrom was an econometrician from New Zealand who came to LSE as a Reader in Economics in 1962. He returned to Auckland University in 1964 as Professor of Economics, and, when he returned to the UK in 1970, it was to the University of Essex, where he remained until 2005. While at LSE he began his research on continuous time econometrics, but as most of his research in this area was carried out after he left the School, it will not figure in this discussion of LSE’s contribution to econometrics. See Phillips (1988a, 2010) for a full discussion of Bergstrom’s research and publications.

  19. 19.

    Durbin played an important part in these appointments. In his ET Interview, he states that: ‘Bill Phillips and I cooperated in getting two new posts at the Readership level at the school: one in the economics department and one in the statistics department. Rex Bergstrom took the post in the economics department for a time and we persuaded Denis Sargan to come from Leeds to the post in the statistics department. Soon afterwards Bergstrom left and Denis migrated to the economics department as a Professor of Econometrics’ (see Phillips 1988b: 135). For an evaluation of the influence of Bill Phillips on econometrics, see Hendry and Mizon (2000).

  20. 20.

    Gorman made an important contribution to the development of the BSc(Econometrics and Mathematical Economics) degree by arguing for the inclusion of a compulsory individual ‘Quantitative Economics Project’ for third-year students, as at Birmingham. He insisted on ‘Quantitative’ rather than ‘Econometric’, this allowing for a much wider range of statistical techniques to be used than simply conventional econometric methods.

  21. 21.

    The recollections of another LSE econometrics student from this time are presented in Spanos (2014).

  22. 22.

    During the 1950s and early 1960s, LSE economists were fortunate to have available the skills of June Wickens in this capacity, but when she married and moved to Bristol there was a considerable fall in the productivity of the Economics Department.

  23. 23.

    This is the idea underlying the so-called data generating process (DGP). See Gilbert (1986) for the technical details.

  24. 24.

    To some extent, these developments were helped by the enormous increase in computing capacity and the development of econometric software packages that greatly simplified the testing process. The improved computing facilities encouraged the use of Monte Carlo methods to study the properties of alternative estimators and showed that desirable asymptotic properties were often present in relatively small samples (see, for example, Hendry 1973).

  25. 25.

    This procedure has been labelled the ‘general to specific’ process and is in marked contrast to the ‘specific to general’ process involved in going from Eqs. (1) or (2) to Eq. (3) above. For an interesting example of this process, see Hendry and Mizon (1978), which presents a critique of a demand for money model developed at the Bank of England.

  26. 26.

    The Davidson et al. (1978) article illustrates the process of encompassing by reconciling a number of apparently very different consumption functions.

  27. 27.

    See Ericsson (2004) for an evaluation of Hendry’s work and a detailed bibliography.

  28. 28.

    Hendry continued to publish research after his move to Oxford, but this work lies outside the scope of this chapter. For a full evaluation of his contribution to econometrics, the reader must await the relevant chapter in the next volume in this Palgrave series, The Palgrave Companion to Oxford Economics.

  29. 29.

    Robinson was an undergraduate at UCL, where he graduated with a BSc in Statistics in 1968. He came to LSE, completed an MSc in Statistics in 1969 and was a Lecturer in the Statistics Department in 1969–1970. He left LSE for Australia and completed his PhD at the Australian National University in 1973. He then moved to Harvard University, where he held a joint position in both the Economics and Statistics Departments and taught there until 1979, which time included a year at Berkeley. After spending 1979 at the University of British Columbia, he returned to the UK as a Professor in the Department of Mathematics at the University of Surrey in 1980 and taught there until 1984, when he moved back to LSE as Professor of Econometrics. See Delgado and Hidalgo (2011).

  30. 30.

    While STICERD generally provides financial support for seminars and workshops, funding for research and IT is provided from elsewhere.

  31. 31.

    A convenient summary of developments in econometrics that covers much of the recent period is Geweke et al. (2008).

  32. 32.

    Marinucci and Robinson (2001) illustrated their fractional cointegration analysis using quarterly time series data on consumption and income from Q1 1947 to Q2 1981 taken from Engle and Granger (1987) and annual data on stock prices and dividends from 1871 to 1986 from Campbell and Shiller (1987).

  33. 33.

    Plotting y against x and smoothing the data using a moving average would be a simple, though not very efficient, example of nonparametric modelling. For the technical details, see Henderson and Parmeter (2015). See also Linton et al. (2004), Komarova (2012), and Adusumilli and Otsu (2015).

  34. 34.

    This continued following the transition from CLE to CEP (see Manning 1992; Ellison and Scott 1998; and Haldane and Quah 2000). See also Nickell (1982, 1985a, b).

  35. 35.

    In 2008 a Spatial Econometrics Research Centre (SERC) was set up and was incorporated into the CEP in September 2015. Its discussion papers are listed on the CEP website as ‘SERCDPs’.

  36. 36.

    When asked how his interest developed his answer was: ‘Harry Johnson and Roy Allen sold me their old copies of Econometrica, which went back to the first volume in 1933. Reading early papers such as Haavelmo (1944) showed that textbooks focused on a small subset of the interesting ideas and ignored the evolution of our discipline’ (Hendry in Ericsson 2004: 779).

  37. 37.

    There are now nearly forty interviews in the series, and those with Rex Bergstrom, Jim Durbin, David Hendry, Peter Robinson and Denis Sargan were extremely useful to the author of this chapter.

  38. 38.

    These courses were listed in the LSE Calendar to be taught in the 1939–1940 session, but with the outbreak of war and LSE’s move to Cambridge, they may not have been given. While at Cambridge a course ‘An Introduction to Econometrics’ was taught in the 1942–1943 session by ex-LSE student, Erwin Rothbarth. This course was open to both LSE and Cambridge students.

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Thomas, J. (2019). LSE and Econometrics. In: Cord, R. (eds) The Palgrave Companion to LSE Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-58274-4_1

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