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Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics

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  • David Colander

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Abstract

This paper argues that the DSGE approach to macroeconometrics is the dominant approach because it meets the institutional needs of the replicator dynamics of the profession, not because it is necessarily the best way to do macroeconometrics. It further argues that this “DSGE-theory first” approach is inconsistent with the historical approach that economists have advocated in the past and that the alternative European CVAR approach is much more consistent with economist’s historically used methodology, correctly understood. However, because the European CVAR approach requires explicit researcher judgment, it does not do well in the replicator dynamics of the profession. The paper concludes with the suggestion that there should be an increase in dialog between the two approaches.

Suggested Citation

  • David Colander, 2009. "Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics," Middlebury College Working Paper Series 0912, Middlebury College, Department of Economics.
  • Handle: RePEc:mdl:mdlpap:0912
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    File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0912.pdf
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    References listed on IDEAS

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    1. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
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    3. Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-844, December.
    4. David Colander (ed.), 2000. "The Complexity Vision and the Teaching of Economics," Books, Edward Elgar Publishing, number 1955.
    5. Dewald, William G & Thursby, Jerry G & Anderson, Richard G, 1986. "Replication in Empirical Economics: The Journal of Money, Credit and Banking Project," American Economic Review, American Economic Association, vol. 76(4), pages 587-603, September.
    6. V. V. Chari & Patrick J. Kehoe, 2006. "Modern Macroeconomics in Practice: How Theory Is Shaping Policy," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 3-28, Fall.
    7. repec:elg:eechap:17588_14 is not listed on IDEAS
    8. Colander, David, 2009. "What Was “It” That Robbins Was Defining?," Journal of the History of Economic Thought, Cambridge University Press, vol. 31(04), pages 437-448, December.
    9. David Colander & Peter Howitt & Alan Kirman & Axel Leijonhufvud & Perry Mehrling, 2018. "Beyond DSGE Models: Toward an Empirically Based Macroeconomics," Chapters,in: How Economics Should Be Done, chapter 14, pages 212-216 Edward Elgar Publishing.
    10. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2009. "New Keynesian Models: Not Yet Useful for Policy Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 242-266, January.
    11. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March.
    12. Spanos, Aris, 2009. "The Pre-Eminence of Theory versus the European CVAR Perspective in Macroeconometric Modeling," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-14.
    13. Colander, David, 2003. "The Aging of an Economist," Journal of the History of Economic Thought, Cambridge University Press, vol. 25(02), pages 157-176, June.
    14. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-148.
    15. Keynes, John Neville, 1890. "The Scope and Method of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 4, number keynes1890.
    16. Ireland, Peter N., 2004. "A method for taking models to the data," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1205-1226, March.
    17. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521865487.
    18. Kevin D. Hoover & Soren Johansen & Katarina Juselius, 2008. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," American Economic Review, American Economic Association, vol. 98(2), pages 251-255, May.
    19. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics
      by Christian Zimmermann in NEP-DGE blog on 2009-10-26 05:44:43

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    Cited by:

    1. David Colander, 2010. "The economics profession, the financial crisis, and method," Journal of Economic Methodology, Taylor & Francis Journals, vol. 17(4), pages 419-427.
    2. Spanos, Aris, 2009. "The Pre-Eminence of Theory versus the European CVAR Perspective in Macroeconometric Modeling," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-14.
    3. Katarina Juselius, 2009. "Time to reject the privileging of economic theory over empirical evidence? A Reply to Lawson (2009)," Discussion Papers 09-16, University of Copenhagen. Department of Economics.

    More about this item

    Keywords

    methodology; macroeconometrics; general to specific; DSGE; VAR; judgment; incentives;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • A1 - General Economics and Teaching - - General Economics

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