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Econometrics in a Formal Science of EconomicsTheory and the Measurement of Economic Relations$
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Bernt P. Stigum

Print publication date: 2014

Print ISBN-13: 9780262028585

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262028585.001.0001

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Bridge Principles and Theory in Applied Econometrics

Bridge Principles and Theory in Applied Econometrics

(p.313) 10 Bridge Principles and Theory in Applied Econometrics
Econometrics in a Formal Science of Economics

Bernt P. Stigum

The MIT Press

The chapter begins with a discussion of the status of bridge principles in empirical analyses in which the data generating process does not appear. Then it contrasts the ideas of encompassing and congruence in present-day econometrics and formal econometrics, and explicates how the notions of encompassing and congruence can be used to determine the status of bridge principles in formal econometrics. The chapter concludes with a discussion of present-day and formal econometric prescriptions for the use of theory in the book’s case studies, and with a commentary on three problematic aspects of present-day econometric methodology. The results of a case study with the methods of present-day econometrics differ from the results which the same case study yields with the methods of formal econometrics. The chapter attributes the differences to the respective researchers’ different understanding of theory, and describes how a researcher’s understanding of theory affects the inference about social reality that he can draw from statistical analyses. The three methodological problems concern analysis of positively valued time series, empirical irrelevance of qualitative response models, and the search for theoretically meaningful cointegrating relations. The discussion suggests solutions to problems and good reasons for concern about a misguided search for cointegrating relations.

Keywords:   bridge principles, applied economics, encompassing, congruence, present-day econometrics, formal econometrics, qualitative response model, cointegration, empirical relevance, economic theory

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