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Economic Theory and Causal Inference

  • Kevin Hoover

    (Department of Economics, University of California Davis)

Post-Walrasian economics is not a doctrine, but a slogan announcing that something has to change. In this paper, I explore a conservative version of post-Walrasian economics that can be summarized as back to the methodology of Alfred Marshall’s – particularly to his essay, “The Present Position of Economics” (1885). The Walrasian approach is a bottom-up, engineering vision: economics must be built on secure foundations of primitive theory, like a building. Marshall’s approach is a top-down, archaelogical vision: the structure of economics must be uncovered starting with the observable facts and empirically determining what lies behind them. Marshall’s methodology places the relationship between theory and empirical tools on center stage. The dominant tools of macroeconometrics are the vector autoregression (VAR) and calibration techniques, which were developed as reactions to two nearly simultaneous reactions to the Cowles-Commission program in econometrics: the Lucas critique and the Sims critique. The various strands of macroeconometrics are examined through the competing Walrasian and Marshallian visions of the role of theory in econometrics. A suggestion for a truly Marshallian (and post-Walrasian) econometrics is then offered.

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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 64.

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Length: 46
Date of creation: 01 Sep 2005
Date of revision:
Handle: RePEc:cda:wpaper:06-4
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  1. Cochrane, John H., 1998. "What do the VARs mean? Measuring the output effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 277-300, April.
  2. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta.
  3. Kevin D. Hoover & Stephen J. Perez, . "Truth and Robustness in Cross-country Growth Regressions," Department of Economics 01-01, California Davis - Department of Economics.
  4. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
  5. Sargent, Thomas J. & Wallace, Neil, 1976. "Rational expectations and the theory of economic policy," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 169-183, April.
  6. repec:cup:cbooks:9780521002882 is not listed on IDEAS
  7. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  8. James L. Heckman, 1999. "Causal Parameters and Policy Analysis in Economcs: A Twentieth Century Retrospective," NBER Working Papers 7333, National Bureau of Economic Research, Inc.
  9. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
  10. Jerry L. Jordan, 1992. "Private Forecasting and Government Policy Stability," Cato Journal, Cato Journal, Cato Institute, vol. 12(1), pages 81-106, Spring/Su.
  11. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
  12. Neil R. Ericsson & David F. Hendry, 1989. "Encompassing and rational expectations: how sequential corroboration can imply refutation," International Finance Discussion Papers 354, Board of Governors of the Federal Reserve System (U.S.).
  13. Kevin Hoover & Selva Demiralp & Stephen J. Perez, 2006. "A Bootstrap Method for Identifying and Evaluating a Structural Vector Autoregression," Working Papers 614, University of California, Davis, Department of Economics.
  14. repec:cup:cbooks:9780521452175 is not listed on IDEAS
  15. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
  16. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  17. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  18. Granger, C. W. J., 1980. "Testing for causality : A personal viewpoint," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 329-352, May.
  19. Spanos, Aris, 1995. "On theory testing in econometrics : Modeling with nonexperimental data," Journal of Econometrics, Elsevier, vol. 67(1), pages 189-226, May.
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