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Interpreting economic time series

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Thomas J. Sargent

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Abstract

This paper explores some of the implications for econometric practice of the principle that people’s observed behavior will change when their constraints change. In dynamic contexts, a proper definition of people’s constraints includes among them laws of motion that describe the evolution of the taxes they must pay and the prices of the goods that they buy and sell. Changes in agents’ perceptions of these laws of motion (or constraints) will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess. Until very recently, received dynamic econometric practice ignored this principle. The practice of dynamic econometrics should be changed so that it is consistent with the principle that people’s rules of choice are influenced by their constraints. This is a substantial undertaking, and involves major adjustments in the ways that we formulate, estimate, and simulate econometric models.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 58.

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Date of creation: 1980
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Handle: RePEc:fip:fedmsr:58

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  1. Jordi Galí & Mark Gertler, 2007. "Macroeconomic Modeling for Monetary Policy Evaluation," Economics Working Papers 1039, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2007. [Downloadable!]
    Other versions:
  2. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Cowles Foundation Discussion Papers 564, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  3. Sharon Kozicki & P.A. Tinsley, 1998. "Vector rational error correction," Research Working Paper 98-03, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  4. Willem H. Buiter, 1981. "Macroeconometric Modelling for Policy Evaluation and Design," NBER Technical Working Papers 0013, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Fisher, Brian S., 1983. "Rational Expectations In The Australian Wool Industry," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 27(03), December. [Downloadable!]
  6. Thomas Sargent & Noah Williams & Tao Zha, 2006. "The conquest of South American inflation," Working Paper 2006-20, Federal Reserve Bank of Atlanta. [Downloadable!]
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  7. Lawrence J. Christiano, 1980. "The term structure of interest rates and the aliasing identification problem," Working Papers 165, Federal Reserve Bank of Minneapolis. [Downloadable!]
  8. Robert S. Chirinko, 1985. "The Ineffectiveness of Effective Tax Rates on Business Investment," NBER Working Papers 1704, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Lars Peter Hansen & Thomas J. Sargent, 1982. "Formulating and estimating continuous time rational expectations models," Staff Report 75, Federal Reserve Bank of Minneapolis. [Downloadable!]
  10. Filippo Altissimo & Stefano Siviero & Daniele Terlizzese, 2002. "How Deep are the Deep Parameters?," Annales d'Economie et de Statistique, ADRES, issue 67-68, pages 08, Juillet-D. [Downloadable!]
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  11. Olivier J. Blanchard, 1982. "Identification in Dynamic Linear Models with Rational Expectations," NBER Technical Working Papers 0024, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Lars Peter Hansen & Thomas J. Sargent, 1990. "Recursive Linear Models of Dynamic Economies," NBER Working Papers 3479, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Herschel I. Grossman, 1984. "Counterfactuals, Forecasts, and Choice-Theoretic Modelling of Policy," NBER Working Papers 1381, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Danny Quah, 1996. "Aggregate and Regional Disaggregate Fluctuations," CEP Discussion Papers dp0275, Centre for Economic Performance, LSE. [Downloadable!]
  15. Robert G. King, 1995. "Quantitative theory and econometrics," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 53-105. [Downloadable!]
  16. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18. [Downloadable!]
  17. Robert S. Chirinko, 1987. "Tobin's Q and Financial Policy," NBER Working Papers 2082, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Lars Peter Hansen & Thomas J. Sargent, 1981. "A note on Wiener-Kolmogorov prediction formulas for rational expectations models," Staff Report 69, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  19. Thomas J. Sargent, 1982. "Beyond demand and supply curves in macroeconomics," Staff Report 77, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  20. Mejra Festić, 2006. "Procyclicality Of Financial And Real Sector In Transition Economies," Prague Economic Papers, University of Economics, Prague, vol. 2006(4), pages 315-349. [Downloadable!] (restricted)
  21. Strong, S.M., 1985. "Rational Expectations and Weekly Price Variations of the Queensland Mud Crab," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 53(03), December. [Downloadable!]
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