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VAR Modelling Approach and Cowles Commission Heritage

  • Duo Qin

    (Queen Mary, University of London)

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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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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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  1. Thomas J. Sargent, 1975. "The observational equivalence of natural and unnatural rate theories of macroeconomics," Working Papers 48, Federal Reserve Bank of Minneapolis.
  2. Litterman, Robert B & Weiss, Laurence M, 1985. "Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data," Econometrica, Econometric Society, vol. 53(1), pages 129-56, January.
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  6. George W. Evans & Seppo Honkapohja, 2005. "An Interview with Thomas J. Sargent," University of Oregon Economics Department Working Papers 2005-2, University of Oregon Economics Department, revised 11 Jan 2005.
  7. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1987. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  8. Wallis, Kenneth F, 1980. "Econometric Implications of the Rational Expectations Hypothesis," Econometrica, Econometric Society, vol. 48(1), pages 49-73, January.
  9. 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.
  10. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  11. 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.
  12. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  13. Thomas J. Sargent, 1980. "Interpreting economic time series," Staff Report 58, Federal Reserve Bank of Minneapolis.
  14. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  15. Leamer, Edward E, 1973. "Multicollinearity: A Bayesian Interpretation," The Review of Economics and Statistics, MIT Press, vol. 55(3), pages 371-80, August.
  16. Christopher A. Sims, 1989. "Models and their uses," Discussion Paper / Institute for Empirical Macroeconomics 11, Federal Reserve Bank of Minneapolis.
  17. 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.
  18. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
  19. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-48.
  20. Hansen, Lars Peter, 2004. "An Interview With Christopher A. Sims," Macroeconomic Dynamics, Cambridge University Press, vol. 8(02), pages 273-294, April.
  21. Sims, Christopher A, 1983. "Is There a Monetary Business Cycle?," American Economic Review, American Economic Association, vol. 73(2), pages 228-33, May.
  22. Pagan, Adrian, 1987. " Three Econometric Methodologies: A Critical Appraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 1(1), pages 3-24.
  23. QIN, Duo, 1996. "BAYESIAN ECONOMETRICS: The First Twenty Years," Econometric Theory, Cambridge University Press, vol. 12(03), pages 500-516, August.
  24. Kydland, Finn E & Prescott, Edward C, 1991. " The Econometrics of the General Equilibrium Approach to Business Cycles," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 161-78.
  25. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
  26. Sargent, Thomas J & Wallace, Neil, 1973. "Rational Expectations and the Dynamics of Hyperinflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 328-50, June.
  27. Clements, Michael P. & Mizon, Grayham E., 1991. "Empirical analysis of macroeconomic time series : VAR and structural models," European Economic Review, Elsevier, vol. 35(4), pages 887-917, May.
  28. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  29. Rodney Maddock, 1984. "Rational Expectations Macrotheory: a Lakatosian Case Study in Program Adjustment," History of Political Economy, Duke University Press, vol. 16(2), pages 291-309, Summer.
  30. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-57, May.
  31. Sent, Esther-Mirjam, 1997. "Sargent versus Simon: Bounded Rationality Unbound," Cambridge Journal of Economics, Oxford University Press, vol. 21(3), pages 323-38, May.
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