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Econometrics: Alchemy or Science?Essays in Econometric Methodology$
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David F. Hendry

Print publication date: 2000

Print ISBN-13: 9780198293545

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198293542.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 26 October 2021

On the Formulation of Empirical Models in Dynamic Econometrics

On the Formulation of Empirical Models in Dynamic Econometrics

(p.358) 16 On the Formulation of Empirical Models in Dynamic Econometrics
Econometrics: Alchemy or Science?

David F. Hendry (Contributor Webpage)

Jean‐François Richard

Oxford University Press

Investigates the constructs of innovation errors, invariance, encompassing, and data admissibility, relates these to exogeneity and progressive research strategies, and introduces the notion of designing models to satisfy certain criteria to extend the manual of ‘good empirical practice’ through delineating more rigorous quality‐control procedures. Empirical models derive from the data generation process by reduction operations (such as marginalizing and conditioning), which induce transformed parameters and corresponding disturbance terms, which together determine the quality of an empirical model. A taxonomy of information sets exhaustively partitions available data into the six disjoint sets of the (relative) past, present, and future of the investigators own data, theory and measurement information, and evidence from rival models. Specific concepts correspond to each of the six elements in that partition, namely, innovation processes, exogeneity, invariance, theory consistency, data admissibility, and encompassing, These characterize the primary null hypotheses against which tests of different alternatives are conducted. Dynamic simulation is shown to be an inadequate model evaluation criterion.

Keywords:   data admissibility, dynamic simulation, encompassing, innovation errors, invariance, model design, progressive research strategy, taxonomy of information, theory consistency, weak exogeneity

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