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VAR Modelling Approach and Cowles Commission Heritage

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  • Duo Qin

    (Queen Mary, University of London)

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Abstract

This paper examines the rise of the VAR approach from a historical perspective. It shows that the VAR approach arises as a systematic solution to the issue of 'model choice' bypassed by Cowles Commission (CC) researchers, and that the approach essentially inherits and enhances the CC legacy rather than abandons or opposes it. It argues that the approach is not so atheoretical as widely believed and that it helps reform econometrics by shifting research focus from measurement of given theories to identification/verification of data-coherent theories, and hence from confirmatory analysis to a mixture of confirmatory and exploratory analysis.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp557.pdf
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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 557.

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Date of creation: Mar 2006
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Handle: RePEc:qmw:qmwecw:wp557

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Keywords: VAR; Macroeconometrics; Methodology; Rational expectations; Structural model;

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  1. Qin, Duo & Gilbert, Christopher L., 2001. "The Error Term In The History Of Time Series Econometrics," Econometric Theory, Cambridge University Press, vol. 17(02), pages 424-450, April.
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  10. Robert B. Litterman & Laurence M. Weiss, 1984. "Money, real interest rates, and output: a reinterpretation of postwar U.S. data," Staff Report 89, Federal Reserve Bank of Minneapolis.
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  18. Leamer, Edward E, 1973. "Multicollinearity: A Bayesian Interpretation," The Review of Economics and Statistics, MIT Press, vol. 55(3), pages 371-80, August.
  19. Esther-Mirjam Sent, 2002. "How (Not) to Influence People: The Contrary Tale of John F. Muth," History of Political Economy, Duke University Press, vol. 34(2), pages 291-320, Summer.
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  21. Sims, Christopher A, 1983. "Is There a Monetary Business Cycle?," American Economic Review, American Economic Association, vol. 73(2), pages 228-33, May.
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  23. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  24. Ta-Chung Liu, 1955. "A Simple Forecasting Model for the U.S. Economy," IMF Staff Papers, Palgrave Macmillan, vol. 4(3), pages 434-466, August.
  25. Sargent, Thomas J, 1976. "The Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 631-40, June.
  26. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
  27. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  28. Sent, Esther-Mirjam, 1997. "Sargent versus Simon: Bounded Rationality Unbound," Cambridge Journal of Economics, Oxford University Press, vol. 21(3), pages 323-38, May.
  29. QIN, Duo, 1996. "BAYESIAN ECONOMETRICS: The First Twenty Years," Econometric Theory, Cambridge University Press, vol. 12(03), pages 500-516, August.
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