A Vision of a Science of Economics
A Vision of a Science of Economics
The chapter presents Ragnar Frisch and Trygve Haavelmo’s vision of a science of economics, explicates in simple terms the meaning of a formal theory-data confrontation, and describes and resolves an interesting riddle in applied econometrics. Frisch and Haavelmo’s idea of a unified theoretical-quantitative and empirical-quantitative approach to economic problems can be realized in two ways. In one the researcher identifies his theory variables with Haavelmo’s true variables and carries out his empirical analysis the way present-day econometricians do. In the other the researcher identifies his theory variables with variables in Frisch’s model world and carries out his empirical analysis the way formal econometrics prescribes. As exemplified in a formal data confrontation of a simultaneous-equations model of a perfectly competitive commodity market, the empirical analyses in the two scenarios may end in different descriptions of the dynamics of data variables and yield different statistical inferences about social reality. The chapter concludes with a discussion of the mentioned riddle in applied econometrics. The riddle elicits a clear view of the kind of knowledge about social reality that an applied econometrician can obtain.
Keywords: theoretical-quantitative approach, empirical-quantitative approach, true variables, model world, abstract scenario, present-day econometrics, formal econometrics, knowledge of variable hypotheticals, unitary methodological basis, theory-data confrontation
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