Hostname: page-component-7b7567c8c-7pwfn Total loading time: 0 Render date: 2026-11-15T19:52:40.428Z Has data issue: false hasContentIssue false
  • English
  • Français

An Agenda For Econometric Model Building

Published online by Cambridge University Press:  04 January 2017

Jim Granato
Get accessRights & Permissions [Opens in a new window]

Abstract

This article addresses the lack of cohesion in econometric model building. This incoherence contributes to model building based on statistical criteria—correcting residuals—and not theoretical criteria. The models we build, therefore, are not valid replications of theory. To deal with this problem, an agenda for model building is outlined and discussed. Drawing on the methodological approaches of Hendry, Qin, and Favero (1989), Hendry and Richard (1982, 1983), Sargan (1964), and Spanos (1986), this agenda incorporates a “general to simple” modeling philosophy, a battery of diagnostic tests, reduction theory, and the development of models that include short-term and long-term parameters. A comparison is made between a model based on this agenda and a model based on corrected residuals. The findings show that the agenda-based model outperforms the residual correction model.

Information

Type
Research Article
Information
Political Analysis , Volume 3 , 1991, pp. 123 - 154
Copyright
Copyright © by the University of Michigan 1992 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Aldrich, John, Duvall, Raymond, and Weldes, Jutta. 1987. “Military Strength Versus the Provision of Welfare: The State and the Political Economy of ‘Guns-Butter’ Trade-offs.” Institute of International Studies, University of Minnesota, no. 10.Google Scholar
Box, George, and Pierce, Douglas. 1970. “Distribution of Residual Autocorrelations in Autoregressive-integrated Moving Average Time-Series Models.” Journal of the American Statistical Association 65: 1509–26.Google Scholar
Chong, Yock, and Hendry, David. 1986. “Econometric Evaluation of Linear Macroeconomic Models.” Review of Economic Studies 53: 671–90.Google Scholar
Chow, Gregory. 1960. “Tests of Equality between Sets of Coefficients in Two Linear Regressions.” Econometrica 28 (3): 591–605.Google Scholar
Cox, D. R. 1961. “Tests of Separate Families of Hypothesis.” Proceedings of the Fourth Berkeley Symposium on Mathematical Statistics and Probability, 1: 105–23. Berkeley: University of California Press.Google Scholar
Dufour, Jean-Marie. “Recursive Stability of Linear Regression Relationships.” Journal of Econometrics 19: 31–76.Google Scholar
Durbin, James, and Watson, Geoffrey S. 1950. “Testing for Serial Correlation in Least Squares Regression I.” Biometrika 37: 409–28.Google Scholar
Durbin, James, and Watson, Geoffrey S. 1951. “Testing for Serial Correlation in Least Squares Regression II.” Biometrika 38: 159–78.Google Scholar
Eisner, Robert. 1986. How Real is the Federal Deficit? New York: Free Press.Google Scholar
Engle, Robert. 1982. “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation.” Econometrica 50 (4): 987–1007.Google Scholar
Engle, Robert, and Granger, Clive. 1987. “Cointegration and Error Correction: Representation, Estimation, and Testing.” Econometrica 55 (2): 251–76.Google Scholar
Engle, Robert, and Hendry, David. 1990. “Testing Super Exogeneity and Invariance in Regression Models.” Applied Economics Discussion Paper, no. 100, University of Oxford.Google Scholar
Engle, Robert, Hendry, David, and Richard, Jean-Francois. 1983. “Exogeneity.” Econometrica 51: 277–304.Google Scholar
Ericsson, Neil. 1983. “Asymptotic Properties of Instrumental Variables Statistics for Testing Nonnested Hypotheses.” Review of Economic Studies 50: 287–304.Google Scholar
Favero, Carlo, and Hendry, David. 1990. “Testing the Lucas Critique: A Review.” Applied Economics Discussion Paper, no. 101, University of Oxford.Google Scholar
Freeman, John, Lin, Tse-min, and Williams, John. 1989. “Vector Autoregression and the Study of Politics.” American Journal of Political Science 33: 842–77.Google Scholar
Godfrey, Leslie G. 1978. “Testing Against General Autoregressive and Moving Average Error Models when the Regressors Include Lagged Dependent Variables.” Econometrica 46 (6): 1293–1301.Google Scholar
Hendry, David. 1986. “Empirical Modeling in Dynamic Econometrics.” Applied Mathematics and Computation 21: 1–36.Google Scholar
Hendry, David. 1988. “The Encompassing Implications of Feedback versus Feed forward Mechanisms in Econometrics.” Oxford Economic Papers 40: 132–49.Google Scholar
Hendry, David. 1989. PC-GIVE: An Interactive Menu-Driven Econometric Modeling Program for IBM-compatible PCs, Version 6.01. Oxford: University of Oxford Institute of Economics and Statistics and Nuffield College.Google Scholar
Hendry, David and Anderson, Gregory. 1977. “Testing Dynamic Specification on Small Simultaneous Systems: An Application to a Model of Building Society Behavior in the United Kingdom.” In Frontiers in Quantitative Economics, ed. Intriligator, Michael. Amsterdam: North-Holland.Google Scholar
Hendry, David, and Ericsson, Neil. 1991. “Modeling the Demand for Narrow Money in the United Kingdom and the United States.” European Economic Review 35: 1–49.Google Scholar
Hendry, David and Mizon, Grayham. 1978. “Serial Correlation as a Convenient Simplification, Not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England.” Economic Journal 88: 549–63.Google Scholar
Hendry, David, and Morgan, Mark. 1989. “A Reanalysis of Confluence Analysis.” Oxford Economic Papers 41: 35–52.Google Scholar
Hendry, David, Qin, Duo, and Favero, Carlo. 1989. Lectures on Econometric Methodology. Oxford: Oxford University Press. Forthcoming.Google Scholar
Hendry, David, and Richard, Jean-Francois. 1982. “On the Formulation of Empirical Models in Dynamic Econometrics.” Journal of Econometrics 20 (1): 3–33.Google Scholar
Hendry, David, and Richard, Jean-Francois. 1983. “The Econometric Analysis of Time-Series.” International Statistical Review 51 (2): 111–63.Google Scholar
Hendry, David, and Richard, Jean-Francois. 1988. “Recent Developments in the Theory of Encompassing.” Institute of Statistics and Decision Sciences, Duke University, no. 88-05.Google Scholar
Jarque, Carlos M., and Bera, Anil K. 1980. “Efficient Testes for Normality, Homoskedasticity, and Serial Independence of Regression Residuals.” Economics Letters 6 (3): 255–59.Google Scholar
Johansen, Soren. 1988. “Statistical Analysis of Cointegration Vectors.” Journal of Economic Dynamics and Control 12: 231–54.CrossRefGoogle Scholar
Johnston, J. 1984. Econometric Methods. New York: McGraw-Hill.Google Scholar
Judge, George, Griffiths, W. E., Carter Hill, R., Lütkepohl, Helmut, and Lee, Tsoung-Chao. 1985. The Theory and Practice of Econometrics. New York: Wiley.Google Scholar
Learner, Edward. 1978. Specification Searches. New York: Wiley.Google Scholar
McGinnis, Michael, and Williams, John T. 1989. “Change and Stability in Superpower Rivalry.” American Political Science Review 83 (4): 1101–23.Google Scholar
Mizon, Grayham. 1984. “the Encompassing Approach in Econometrics.” In Econometrics and Quantitative Economics, ed. Hendry, David and Wallis, Kenneth. Oxford: Basil Blackwell.Google Scholar
Mizon, Grayham, and Richard, Jean-Francois. 1986. “The Encompassing Principle and its Application to Nonnested Hypothesis Tests.” Econometrica 54: 657–78.Google Scholar
Pagan, Adrian. 1987. “Three Econometric Methodologies: A Critical Appraisal.” Journal of Economic Surveys 1(1): 3–24.Google Scholar
Ramsey, J. B. 1969. “Test for Specification Errors in Classical Linear Least Squares Regression Analysis.” Journal of the Royal Statistical Society, Ser. B 31 (2): 350–71.Google Scholar
Sargan, J. Denis. 1964. “Wages and Prices in the United Kingdom: A Study in Econometric Methodology.” In Econometric Analysis for National Economic Planning, ed. Hart, P. and Mills, G. London: Butterworths.Google Scholar
Sargan, J. Denis. 1980. “Some Tests of Dynamic Specification for a Single Equation.” Econometrica 48(4): 879–97.Google Scholar
Schwarz, G. 1978. “Estimating the Dimension of a Model.” Annals of Statistics 6: 461–64.Google Scholar
Sims, Christopher. 1980. “Macroeconomics and Reality.” Econometrica 48: 1–48.Google Scholar
Sims, Christopher. 1986. “Review of Specification, Estimation, and Analysis of Macroeconometric Models by Ray Fair.” Journal of Money, Credit, and Banking 18: 121–26.Google Scholar
Spanos, Aris. 1986. Statistical Foundations of Econometric Methodology, Cambridge: Cambridge University Press.Google Scholar
Thursby, James, and Schmidt, Peter. 1977. “Some Properties of Tests for Specification Error in a Linear Regression Model.” Journal of the American Statistical Association 72: 635–41.Google Scholar
White, Halbert. 1980. “A Heteroskedasticity-consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity.” Econometrica 48 (4): 817–38.Google Scholar
Williams, John. 1990. “The Political Manipulation of Macroeconomic Policy.” American Political Science Review 84 (3): 767–95.Google Scholar
Williams, John, and McGinnis, Michael. 1988. “Sophisticated Reaction in the U.S.-Soviet Arms Race: Evidence of Rational Expectations.” American Journal of Political Science 32: 968–95.Google Scholar