I3 Methodology Of Econometrics

How do econometricians proceed in their analysis of an economic problem? That is, what is their methodology? Although there are several schools of thought on econometric methodology, we present here the traditional or classical methodology, which still dominates empirical research in economics and other social and behavioral sciences.9

Broadly speaking, traditional econometric methodology proceeds along the following lines:

1. Statement of theory or hypothesis.

2. Specification of the mathematical model of the theory

3. Specification of the statistical, or econometric, model

4. Obtaining the data

5. Estimation of the parameters of the econometric model

6. Hypothesis testing

7. Forecasting or prediction

8. Using the model for control or policy purposes.

To illustrate the preceding steps, let us consider the well-known Keynesian theory of consumption.

8Aris Spanos, Probability Theory and Statistical Inference: Econometric Modeling with Observational Data, Cambridge University Press, United Kingdom, 1999, p. 21.

9For an enlightening, if advanced, discussion on econometric methodology, see David F. Hendry, Dynamic Econometrics, Oxford University Press, New York, 1995. See also Aris Spanos, op. cit.

Was this article helpful?

0 0
Rules Of The Rich And Wealthy

Rules Of The Rich And Wealthy

Learning About The Rules Of The Rich And Wealthy Can Have Amazing Benefits For Your Life And Success. Discover the hidden rules and beat the rich at their own game. The general population has a love / hate kinship with riches. They resent those who have it, but spend their total lives attempting to get it for themselves. The reason an immense majority of individuals never accumulate a substantial savings is because they don't comprehend the nature of money or how it works.

Get My Free Ebook


Post a comment