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Econometric Modelling of Changing Time Series


  • David Hendry
  • Grayham E. Mizon


We model expenditure on food in the USA, using an extended time series. Even when a theory is essentially 'correct', it can manifest serious mis-specification if just fitted to data, ignoring its observed characteristics and major external events such as wars, recessions and policy changes. When the same theory is embedded in a general framework embracing dynamics and structural breaks, it performs well even over an extended data period, as shown using Autometrics with impulse-indicator saturation. Although this particular illustration involves a simple theory, the point made is generic, and applies no matter how sophisticated the theory.

Suggested Citation

  • David Hendry & Grayham E. Mizon, 2010. "Econometric Modelling of Changing Time Series," Economics Series Working Papers 475, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:475

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    Econometric modelling; Food expenditure; Structural breaks; Impulse-indicator saturation; Autometrics;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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