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Empirical Economic Model Discovery and Theory Evaluation

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Author Info

  • David F. Hendry

    ()
    (University of Oxford)

Abstract

Economies are so high dimensional and non-constant that many features of models cannot be derived by prior reasoning, intrinsically involving empirical discovery and requiring theory evaluation. Despite important differences, discovery and evaluation in economics are similar to those of science. Fitting a pre-specified equation limits discovery, but automatic methods can formulate much more general initial models with many possible variables, long lag lengths and non-linearities, allowing for outliers, data contamination, and parameter shifts; then select congruent parsimonious-encompassing models even with more candidate variables than observations, while embedding the theory; finally rigorously evaluate selected models to ascertain their viability.

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Bibliographic Info

Article provided by Frankfurt School Verlag, Frankfurt School of Finance & Management in its journal Rationality, Markets and Morals.

Volume (Year): 2 (2011)
Issue (Month): 46 (October)
Pages:

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Handle: RePEc:rmm:journl:v:2:y:2011:i:46

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Related research

Keywords: Empirical discovery; Theory evaluation; Model selection; Autometrics;

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References

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  1. Castle, Jennifer L. & Doornik, Jurgen A. & Hendry, David F., 2012. "Model selection when there are multiple breaks," Journal of Econometrics, Elsevier, vol. 169(2), pages 239-246.
  2. Carlos Santos & David Hendry & Soren Johansen, 2008. "Automatic selection of indicators in a fully saturated regression," Computational Statistics, Springer, vol. 23(2), pages 317-335, April.
  3. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March.
  4. David F. Hendry & Carlos Santos, 2005. "Regression Models with Data-based Indicator Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(5), pages 571-595, October.
  5. Hendry, David F., 1976. "The structure of simultaneous equations estimators," Journal of Econometrics, Elsevier, vol. 4(1), pages 51-88, February.
  6. Hendry, David F., 1979. "The behaviour of inconsistent instrumental variables estimators in dynamic systems with autocorrelated errors," Journal of Econometrics, Elsevier, vol. 9(3), pages 295-314, February.
  7. Castle, Jennifer L. & Hendry, David F., 2010. "A low-dimension portmanteau test for non-linearity," Journal of Econometrics, Elsevier, vol. 158(2), pages 231-245, October.
  8. Jennifer Castle & David Hendry & Nicholas W.P. Fawcett, 2008. "Forecasting with Equilibrium-correction Models during Structural Breaks," Economics Series Working Papers 408, University of Oxford, Department of Economics.
  9. Roger Fouquet & Peter J.G. Pearson, 2006. "Seven Centuries of Energy Services: The Price and Use of Light in the United Kingdom (1300-2000)," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 139-178.
  10. Jennifer L. Castle & Nicholas W.P. Fawcett & David F. Hendry, 2009. "Nowcasting Is Not Just Contemporaneous Forecasting," National Institute Economic Review, National Institute of Economic and Social Research, vol. 210(1), pages 71-89, October.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Modelling without theory
    by Economic Logician in Economic Logic on 2011-03-23 13:59:00
  2. Economic Logician Displaying Precisely No Logic
    by James Reade in Christianity and Econometrics on 2011-03-24 20:58:00
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Cited by:
  1. David Hendry & Soren Johansen, 2012. "Model Discovery and Trygve Haavelmo's Legacy," Economics Series Working Papers 598, University of Oxford, Department of Economics.

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  1. Economic Logic blog

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