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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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Qualitative Response Models

Qualitative Response Models

(p.107) 4 Qualitative Response Models
Econometrics in a Formal Science of Economics

Bernt P. Stigum

The MIT Press

Chapter IV discusseseconometric analyses of qualitative response models. A qualitative response model is an econometric modelin which the dependent variable is either discrete or half continuous and half discrete. Each proto-type of such models appears in two forms – a standard model and a latent-variable model. Both forms suffer from a serious defect: they fail to provide 1a researcher with the means he needs to ascertain the empirical relevance of his parameter estimates. That is a serious defect since the relations between dependent and explanatory variables that an empirically irrelevant estimate of a qualitative response model describes are meaningless. In a case study of 1980 US females’ participation in the labor force the chapter uses a Probit version of the two models to contrast present-day econometric analysis of the standard model with a formal econometric analysis of the latent-variable model. The empirical analysis reveals that the Probit versions of the two qualitative response models are not empirically relevant in the given empirical context. The empirical analysis also reveals that a present-day analysis of the standard model may deem it empirically relevant while a formal econometric analysis of the latent-variable model deems the latter empirically irrelevant and vice versa.

Keywords:   qualitative response models, standard model, latent-variable model, Probit qualitative response model, theory-data confrontation, upper data universe, lower data universe, empirical relevance, present-day econometrics, formal econometrics

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