Time to reject the privileging of economic theory over empirical evidence? A reply to Lawson
AbstractThe present financial and economic crisis has revealed a systemic failure of academic economics and emphasised the need to re-think how to model economic phenomena. Tony Lawson seems concerned that critics of standard models now will fill academic journals with contributions that make the same methodological mistakes, albeit in a slightly different guise. In particular, he is rather sceptical of the usefulness of mathematical statistical models, such as the Cointegrated VAR model, as a way of learning about economic mechanisms. In this paper I discuss whether this is a relevant claim and argue that it is likely to be based on a misunderstanding of what a proper statistical analysis is and can offer. In particular, I argue that the strong evidence of (near) unit roots and (structural) breaks in economic variables suggests that standard economic models need to be modified or changed to incorporate these strong features of the data. Furthermore, I argue that a strong empirical methodology that allows data to speak freely about economic mechanisms, such as the CVAR, would ensure that important signals in the data are not silenced by prior restrictions. Adequately applied such models would provide us with an early warning system signalling when the economy is moving seriously out of equilibrium. Copyright The Author 2010. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Oxford University Press in its journal Cambridge Journal of Economics.
Volume (Year): 35 (2011)
Issue (Month): 2 ()
Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Web page: http://www.cje.oupjournals.org/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Deakin, Simon, 2013. "The legal theory of finance: Implications for methodology and empirical research," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 338-342.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.