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The Methodology and Practice of EconometricsA Festschrift in Honour of David F. Hendry$
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Jennifer Castle and Neil Shephard

Print publication date: 2009

Print ISBN-13: 9780199237197

Published to Oxford Scholarship Online: September 2009

DOI: 10.1093/acprof:oso/9780199237197.001.0001

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In Praise of Pragmatics in Econometrics

In Praise of Pragmatics in Econometrics

(p.255) 10 In Praise of Pragmatics in Econometrics
The Methodology and Practice of Econometrics

Clive W. J. Granger

Oxford University Press

This chapter considers the role of pragmatics in econometrics, looking at specific examples in econometrics and associated areas, and discusses the advantages and disadvantages of following a pragmatic approach. A great deal of econometric literature start off with a set of formal assumptions, or axioms, and then derive theories and specific models. When these models are applied to actual economic data these models are often fitted without checking if the assumptions hold for the data. It is quite common to find problems with the model, possibly because of failure of the assumptions. When the original model is inadequate, there are various ad hoc changes that can be considered to get to a model that is both acceptable and useful. This is the basic example of pragmatic econometrics. A pragmatic attitude towards model building suggests that alternate models should be kept as viable options for as long as possible, so that a rich set of alternatives should be considered. The aim should be to obtain the most useful set of options for the decision maker rather than the single ‘best’ model. The theme in this chapter is to suggest that in many realistic situations, it is better for an econometrician to be pragmatic rather than dogmatic.

Keywords:   pragmatism, dogmatism, forecasting, testing theories, diversification

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