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Chapter 16: The Development of Econometrics and Empirical Methods

Chapter 16: The Development of Econometrics and Empirical Methods. Questions for Review, Discussion and Research 1, 2, 4 - There has been a continuous debate in the profession about the proper relationship between theory and empirical methods Overhead pp. 437. Empirical Approaches.

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Chapter 16: The Development of Econometrics and Empirical Methods

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  1. Chapter 16: The Development of Econometrics and Empirical Methods Questions for Review, Discussion and Research 1, 2, 4 - There has been a continuous debate in the profession about the proper relationship between theory and empirical methods Overhead pp. 437

  2. Empirical Approaches • Common Sense Empiricism • Relates theory to reality through direct observation with a minimum of statistical aids • Still commonplace in some subjects • history • anthropology

  3. Contemporary supporters point to the valuable insights found in • careful observation • extensive field work • case studies • direct contact with institutions • personal experience “within” an event

  4. Empirical Approaches Cont’d • Statistical analysis • Emphasizes those aspects of an economic event that can be quantified and is therefore subject to measurement and analysis • Supporters claim that this approach permits a researcher to draw from a large number of theories and select the most relevant one.

  5. Also claim that it discouraged pre-considered theoretical notions from biasing one’s interpretation of data • Classical Econometrics • - Rigorous defines the relationship between theory and empirical data • - developed in the 1930’s

  6. Empirical Approaches Cont’d • Baynesian Approach • - Directly relates theory and data as above but assumes that no test can provide definite answers • - Does not seek objective laws but subjective degrees of belief • - Statistical analysis cannot determine objective truths, but it does add in making subjective judgments

  7. Recent Developments • Computer Technology • Agent Based Modelling • Calibration • See if data is consistent with a theory • Experimental Economics

  8. Distinction Between Mathematical Economics, Statistical and Econometrics • Overhead pp. 440 and 441

  9. Neoclassical Era (1870-1950’s) and Empirical Analysis • There was no accepted test to validate or reject the merits of various theories • This gradually changes as neoclassical theories became more formal and some sought to make economics an exact science • This resulted in formalizing the approach that economists use in their empirical analysis

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