Reformulating empirical macro-econometric modelling
Reformulating empirical macro-econometric modelling
The policy implications of estimated macro-econometric systems depend on the formulations of their equations, the methodology of empirical model selection and evaluation, the techniques of policy analysis, and their forecast performance. Drawing on recent results in the theory of forecasting, we question the role of 'rational expectations'; criticize a common approach to testing economic theories; show that impulse-response methods of evaluating policy are seriously flawed; and question the mechanistic derivation of forecasts from econometric systems. In their place, we propose that expectations should be treated as instrumental to agents' decisions; discuss a powerful new approach to the empirical modelling of econometric relationships; offer viable alternatives to studying policy implications; and note modifications to forecasting devices that can enhance their robustness to unanticipated structural breaks.
economic policy analysis, macro-econometric systems, empirical model selection and evaluation, forecasting, rational expectations, impulse-response analysis, structural breaks
University of Southampton
Hendry, David F.
9c76f1f4-5773-4a45-9778-6ea40af72958
Mizon, Grayham E.
2b8353b4-0af4-48db-b552-6867dc1f4583
2001
Hendry, David F.
9c76f1f4-5773-4a45-9778-6ea40af72958
Mizon, Grayham E.
2b8353b4-0af4-48db-b552-6867dc1f4583
Hendry, David F. and Mizon, Grayham E.
(2001)
Reformulating empirical macro-econometric modelling
(Discussion Papers in Economics and Econometrics, 104)
Southampton, UK.
University of Southampton
27pp.
Record type:
Monograph
(Discussion Paper)
Abstract
The policy implications of estimated macro-econometric systems depend on the formulations of their equations, the methodology of empirical model selection and evaluation, the techniques of policy analysis, and their forecast performance. Drawing on recent results in the theory of forecasting, we question the role of 'rational expectations'; criticize a common approach to testing economic theories; show that impulse-response methods of evaluating policy are seriously flawed; and question the mechanistic derivation of forecasts from econometric systems. In their place, we propose that expectations should be treated as instrumental to agents' decisions; discuss a powerful new approach to the empirical modelling of econometric relationships; offer viable alternatives to studying policy implications; and note modifications to forecasting devices that can enhance their robustness to unanticipated structural breaks.
More information
Published date: 2001
Keywords:
economic policy analysis, macro-econometric systems, empirical model selection and evaluation, forecasting, rational expectations, impulse-response analysis, structural breaks
Identifiers
Local EPrints ID: 33098
URI: http://eprints.soton.ac.uk/id/eprint/33098
PURE UUID: 94502519-9cdd-4434-83bd-cba308a0f03e
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Date deposited: 18 May 2006
Last modified: 15 Mar 2024 07:41
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Contributors
Author:
David F. Hendry
Author:
Grayham E. Mizon
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