Reformulating empirical macroeconomic modelling
Reformulating empirical macroeconomic 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
138-159
Hendry, D.
56dd4f6a-3d5b-41a5-8585-36b36c731c35
Mizon, G.
2b8353b4-0af4-48db-b552-6867dc1f4583
2000
Hendry, D.
56dd4f6a-3d5b-41a5-8585-36b36c731c35
Mizon, G.
2b8353b4-0af4-48db-b552-6867dc1f4583
Hendry, D. and Mizon, G.
(2000)
Reformulating empirical macroeconomic modelling.
Oxford Review of Economic Policy, 16 (4), .
(doi:10.1093/oxrep/16.4.138).
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
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Published date: 2000
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Local EPrints ID: 35029
URI: http://eprints.soton.ac.uk/id/eprint/35029
ISSN: 0266-903X
PURE UUID: 7e6e3366-a3ee-4bfd-ae60-dd6803746d66
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Date deposited: 31 Jul 2006
Last modified: 15 Mar 2024 07:50
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Author:
D. Hendry
Author:
G. Mizon
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