Econometric Modelling


Empirical evidence in much of economics focuses on quantifying the parameters of a preconceived theory. That works well when the theory is complete, correct and immutable, but not when it is incomplete, incorrect or changing especially if unanticipated breaks perturb the assumed relationships. In practice, the available data must be used to discover what matters empirically: which variables are relevant; their dynamic reactions; the functional forms of connections; detecting multiple breaks and evolving distributions; tackling simultaneity and exogeneity; and modelling expectations. As economic data series are highly inter-correlated all those influences must be tackled jointly. However, a key feature of the approach we have developed is that theory-relevant variables can be retained without selection while selecting over other candidate variables, some of which may even be endogenous. Under the null hypothesis that the candidate variables are irrelevant, by orthogonalizing them with respect to the theory-relevant variables, the estimator distributions of the theory parameters are unaffected by selection—even when selecting from more candidate variables than observations. Under the alternative, that some of the additional candidate variables are relevant, when the initial general model nests the generating process, an improved outcome results from selection. Our modelling approach, supported by stringent model evaluation techniques, tackles all the complications of ‘real world’ economies, to provide a viable framework for empirical modelling that avoids many of the difficulties faced by ‘conventional’ approaches.

People: David Hendry, Bent Nielsen, Jennifer Castle, Jurgen Doornik, Vanessa Berenguer-Rico and James Duffy 

Project Leader / Primary Investigator

Prof. Sir David Hendry

Related Library Items

Robust approaches to forecasting
Numerical evaluation of the Gauss hypergeometric function by power summations
Introduction to Special Section on Exchange Rate Pass-through in Developing and Emerging Markets
Forecasting by factors, by variables, by both or neither?
Detecting Location Shifts During Model Selection by Step-indicator Saturation
Probability Distributions or Point Predictions? Survey Forecasts of US Output Growth and Inflation
Forecasting with Vector Autoregressive Models of Data Vintages: US Output Growth and Inflation
Statistical Model Selection with Big Data
Generalized indirect inference for discrete choice models
Co-summability: From linear to non-linear co-integration
Cumulated Sum of Squares Statistics for Non-linear and Non-stationary Regressions
Asymptotic theory for cointegration analysis when the cointegration rank is deficient
Anticipating early data revisions to US GDP and the effects of releases on equity markets
Generalised empirical likelihood-based kernel density estimation
Econometric Models of Climate Systems: The Equivalence of Two-Component Energy Balance Models and Cointegrated VARs
World CO2 Emission Intensity is Rising Faster than IPCC Scenarios Envisaged
Analysis of the Forward Search using some new results for martingales and empirical processes
Wealth, Credit Conditions and Consumption: evidence from South Africa
New methods for forecasting inflation, applied to the USA
Exchange Rate Pass-Through to Consumer Prices in South Africa: Evidence from Micro-Data
Seconding the vote of thanks on the retrospective reading of "A return to an old paper: Tests of separate families of hypotheses by D.R. Cox"
Consumption, Land Prices and the Monetary Transmission Mechanism in Japan
The limits to compensation in the financial sector
On the Accuracy and Efficiency of IMF Forecasts: A Survey and Some Extensions
Exchange rate pass-through in developing and emerging markets: a survey of conceptual, methodological and policy issues, and selected empirical findings
Forecasting and nowcasting macroeconomic variables: A methodological overview
Deciding between alternative approaches in macroeconomics
The real-wage productivity nexus
Mis-specification testing: Non-Invariance of expectations models of inflation
Introductory macro-econometrics: A new approach.
Mining big data by statistical methods
David Hendry - Celebrating a career of impact
Can economists forecast economic crashes?
How empirical evidence does or does not influence economic thinking and theory
'We've never had it so good' - how does the world today compare to 1957?
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Asymptotic theory of outlier detection algorithms for linear time series regression models
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Causal transmission in reduced-form models
Forecasters' disagreement about how the economy operates, and the role of long-run relationships
Uniform inference in nonparametric predictive regression, and a unified limit theory for spatial density estimation
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Stochastic Learning Dynamics and Speed of Convergence in Population Games
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Using social media to identify market inefficiencies: Evidence from Twitter and Betfair
Quantifying the Uncertainty around Break Dates in Models using Indicator Saturation
Spline-DCS for forecasting trade volume in high-frequency financial data
Asymptotic theory for Beta-t-GARCH
Testing for time-varying predictive accuracy using bias-corrected indicator saturation
General-to-Specific (GETS) Modelling and Indicator Saturation with the R Package gets (version 0.7)
Book Review of Bernt P. Stigum: Econometrics in a formal science of economics: theory and the measurement of economic relations
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Top incomes in East Africa before and after independence
The distribution of top incomes in former British West Africa
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apc: A Package for Age-Period-Cohort Analysis (released 21 March 2016)
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Sir Clive W.J. Granger: Model Selection
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All Change! The Implications of Non-stationarity for Empirical Modelling, Forecasting and Policy
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Forget about Rational Expectations
John Denis Sargan at the London School of Economics
Learning can generate long memory
Bargaining and wage rigidity in a matching model for the US
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Are Macroeconomic Density Forecasts Informative?
Macroeconomics and Consumption
Formula I(1) and I(2): Race Tracks for Likelihood Maximization Algorithms of I(1) and I(2) VAR Models
Explaining Nowcast Errors
The Future of Macroeconomics: Macro Theory and Models at the Bank of England
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Accelerated Estimation of Switching Algorithms: The Cointegrated VAR Model and Other Applications
Over-Dispersed Age-Period-Cohort Models
Automated General-to-Specific (GETS) Modelling of the Mean of Variance of Regressions, and Indicator Saturation Methods for Outliers and Structural Breaks
Marked and Weighted Empirical Processes of Residuals with the Applications to Robust Regressions
White Heteroscedasticity Testing in Robust Regressions
Selecting a Model for Forecasting
Avoiding 'Cautionary Notes about Robustness' by using Model Selection
Cointegration Analysis of Time Series using CATS for OxMetrics
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