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An Agenda For Econometric Model Building

Published online by Cambridge University Press:  04 January 2017

Jim Granato
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Abstract

This article addresses the lack of cohesion in econometric model building. This incoherence contributes to model building based on statistical criteria—correcting residuals—and not theoretical criteria. The models we build, therefore, are not valid replications of theory. To deal with this problem, an agenda for model building is outlined and discussed. Drawing on the methodological approaches of Hendry, Qin, and Favero (1989), Hendry and Richard (1982, 1983), Sargan (1964), and Spanos (1986), this agenda incorporates a “general to simple” modeling philosophy, a battery of diagnostic tests, reduction theory, and the development of models that include short-term and long-term parameters. A comparison is made between a model based on this agenda and a model based on corrected residuals. The findings show that the agenda-based model outperforms the residual correction model.

Type
Research Article
Information
Political Analysis , Volume 3 , 1991 , pp. 123 - 154
Copyright
Copyright © by the University of Michigan 1992 

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