Deciding between alternative approaches in macroeconomics David F. Hendry

Hendry, David F.,(2018), Deciding between alternative approaches in macroeconomics David F. Hendry. , International Journal of Forecasting, UNSPECIFIED

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Abstract

Macroeconomic time-series data are aggregated, inaccurate, non-stationary, collinear and rarely match theoretical concepts. Macroeconomic theories are incomplete, incorrect and changeable: location shifts invalidate the law of iterated expectations and ‘rational expectations’ are then systematically biased. Empirical macro-econometric models are nonconstant and mis-specified in numerous ways, so economic policy often has unexpected effects, and macroeconomic forecasts go awry. In place of using just one of the four main methods of deciding between alternative models, theory, empirical evidence, policy relevance and forecasting, we propose nesting ‘theory-driven’ and ‘data-driven’ approaches, where theory-models’ parameter estimates are unaffected by selection despite searching over rival candidate variables, longer lags, functional forms, and breaks. Thus, theory is retained, but not imposed, so can be simultaneously evaluated against a wide range of alternatives, and a better model discovered when the theory is incomplete.
Keywords : Model selection Theory retention Location shifts Indicator saturation Autometrics, UNSPECIFIED
Journal or Publication Title: International Journal of Forecasting
Volume: 34
Number: UNSPECIFIED
Item Type: Article
Subjects: Ekonomi Pembangunan
Depositing User: Elok Inajati
Date Deposited: 27 Dec 2019 02:10
Last Modified: 27 Dec 2019 07:35
URI: https://repofeb.undip.ac.id/id/eprint/969

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