IDEAS home Printed from https://ideas.repec.org/a/fip/fedhep/y1996ijanp22-31nv.20no.1.html
   My bibliography  Save this article

Some comments on the role of econometrics in economic theory

Author

Listed:
  • Martin S. Eichenbaum

Abstract

The basic tension facing econometricians is that structural models are necessary for addressing monetary policy questions. But all models are, by their very nature, false. Econometric programs that focus on testing whether models are true will be ignored by practicing macroeconomists. The critical task facing econometricians is to develop diagnostic tools for assessing the usefulness of models for addressing particular questions. This article reviews two diagnostic strategies.

Suggested Citation

  • Martin S. Eichenbaum, 1996. "Some comments on the role of econometrics in economic theory," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 20(Jan), pages 22-31.
    • Handle: RePEc:fip:fedhep:y:1996:i:jan:p:22-31:n:v.20no.1
    as

    Download full text from publisher

    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/1996/epjan96b.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Francis X. Diebold & Lee E. Ohanian & Jeremy Berkowitz, 1998. "Dynamic Equilibrium Economies: A Framework for Comparing Models and Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(3), pages 433-451.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 197-205, February.
    4. Christiano, Lawrence J & Eichenbaum, Martin, 1995. "Liquidity Effects, Monetary Policy, and the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1113-1136, November.
    5. Eichenbaum, Martin, 1991. "Real business-cycle theory : Wisdom or whimsy?," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 607-626, October.
    6. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
    7. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-450, June.
    8. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-148.
    9. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 869-902.
    10. Adrian R. Pagan & John C. Robertson, 1995. "Resolving the liquidity effect," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 33-54.
    11. Kydland, Finn E & Prescott, Edward C, 1991. "Hours and Employment Variation in Business Cycle Theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 1(1), pages 63-81, January.
    12. King, Robert G & Watson, Mark W, 1996. "Money, Prices, Interest Rates and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 35-53, February.
    13. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-1174, December.
    14. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Patrick Fève, 1997. "Les méthodes d'étalonnage au regard de l'économétrie," Revue Économique, Programme National Persée, vol. 48(3), pages 629-638.
    2. Chiarini, Bruno & Piselli, Paolo, 2001. "Identification and dimension of the NAIRU," Economic Modelling, Elsevier, vol. 18(4), pages 585-611, December.
    3. V. Pandit, 2008. "Structural Modeling under Challenge," Working Papers id:1622, eSocialSciences.
    4. Malley, Jim & Muscatelli, V. Anton, 1999. "Business cycles and productivity growth: Are temporary downturns productive or wasteful?," Research in Economics, Elsevier, vol. 53(4), pages 337-364, December.
    5. Kevin Hoover & Katarina Juselius, 2012. "Experiments, Passive Observation and Scenario Analysis: Trygve Haavelmo and the Cointegrated Vector Autoregression," Discussion Papers 12-16, University of Copenhagen. Department of Economics.
    6. Ausloos, Marcel & Jovanovic, Franck & Schinckus, Christophe, 2016. "On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 7-14.
    7. Engsted, Tom & Schneider, Jesper W., 2023. "Non-Experimental Data, Hypothesis Testing, and the Likelihood Principle: A Social Science Perspective," SocArXiv nztk8, Center for Open Science.
    8. Jovanovic, Franck & Schinckus, Christophe, 2016. "Breaking down the barriers between econophysics and financial economics," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 256-266.
    9. Ormerod, Paul, 2002. "The US business cycle: power law scaling for interacting units with complex internal structure," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 314(1), pages 774-785.
    10. Berkowitz, Jeremy, 2001. "Generalized spectral estimation of the consumption-based asset pricing model," Journal of Econometrics, Elsevier, vol. 104(2), pages 269-288, September.
    11. Pedro Garcia Duarte & Kevin D. Hoover, 2012. "Observing Shocks," History of Political Economy, Duke University Press, vol. 44(5), pages 226-249, Supplemen.
    12. Duo Qin, 2022. "Redirect the Probability Approach in Econometrics Towards PAC Learning," Working Papers 249, Department of Economics, SOAS University of London, UK.
    13. V. Pandit, 2001. "Structural Modelling Under Challenge," Working papers 98, Centre for Development Economics, Delhi School of Economics.
    14. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034, Decembrie.
    15. Ossama Mikhail, 2005. "What Happens After A Technology Shock? A Bayesian Perspective," Macroeconomics 0510016, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elmar Mertens, 2005. "Puzzling Comovements between Output and Interest Rates? Multiple Shocks are the Answer," Working Papers 05.05, Swiss National Bank, Study Center Gerzensee.
    2. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
    3. Adrian Pagan, 2001. "The Getting of Macroeconomic Wisdom," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 11, pages 219-235, Palgrave Macmillan.
    4. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
    5. Fabio Canova & Eva Ortega, 1996. "Testing calibrated general equilibrium models," Economics Working Papers 166, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1997. "Sticky price and limited participation models of money: A comparison," European Economic Review, Elsevier, vol. 41(6), pages 1201-1249, June.
    7. Karamé, Frédéric & Patureau, Lise & Sopraseuth, Thepthida, 2008. "Limited participation and exchange rate dynamics: Does theory meet the data?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1041-1087, April.
    8. Smith, Gregor W. & Zin, Stanley E., 1997. "Real business-cycle realizations," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 243-280, December.
    9. Mertens, Elmar, 2010. "Structural shocks and the comovements between output and interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1171-1186, June.
    10. Benjamin Keen, 2009. "Output, Inflation, and Interest Rates in an Estimated Optimizing Model of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 327-343, April.
    11. Marchionatti, Roberto & Sella, Lisa, 2015. "Is Neo-Walrasian Macroeconomics a Dead End?," CESMEP Working Papers 201502, University of Turin.
    12. Ingram, B., 1990. "Post Econometric Policy Evaluation : A Critique," Working Papers 90-30, University of Iowa, Department of Economics.
    13. Braun, R. Anton & Evans, Charles L., 1995. "Seasonality and equilibrium business cycle theories," Journal of Economic Dynamics and Control, Elsevier, vol. 19(3), pages 503-531, April.
    14. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2007. "Estimating Macroeconomic Models: A Likelihood Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1059-1087.
    15. Robert G. King, 1995. "Quantitative theory and econometrics," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 53-105.
    16. Ambler, Steve & Guay, Alain & Phaneuf, Louis, 2012. "Endogenous business cycle propagation and the persistence problem: The role of labor-market frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 47-62.
    17. Fernando Ballabriga, 2002. "The development of quantitative empirical analysis in macroeconomics," European Economy - Economic Papers 2008 - 2015 168, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    18. Dridi, Ramdan & Guay, Alain & Renault, Eric, 2007. "Indirect inference and calibration of dynamic stochastic general equilibrium models," Journal of Econometrics, Elsevier, vol. 136(2), pages 397-430, February.
    19. Finn E. Kydland & Edward C. Prescott, 1996. "The Computational Experiment: An Econometric Tool," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 69-85, Winter.
    20. Fernández-Villaverde, J. & Rubio-Ramírez, J.F. & Schorfheide, F., 2016. "Solution and Estimation Methods for DSGE Models," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 527-724, Elsevier.

    More about this item

    Keywords

    Econometrics; Economics;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedhep:y:1996:i:jan:p:22-31:n:v.20no.1. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lauren Wiese (email available below). General contact details of provider: https://edirc.repec.org/data/frbchus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.