Model Discovery and Trygve Haavelmo's Legacy
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Model Discovery and Trygve Haavelmo's Legacy. / Hendry, David; Johansen, Søren.
In: Econometric Theory, Vol. 31, No. 1, 2015, p. 93-114.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Model Discovery and Trygve Haavelmo's Legacy
AU - Hendry, David
AU - Johansen, Søren
N1 - JEL classifications: C51, C22.
PY - 2015
Y1 - 2015
N2 - Trygve Haavelmo's Probability Approach aimed to implement economic theories, but he later recognized their incompleteness. Although he did not explicitly consider model selection, we apply it when theory-relevant variables, {x_{t}}, are retained without selection while selecting other candidate variables, {w_{t}}. Under the null that the {w_{t}} are irrelevant, by orthogonalizing with respect to the {x_{t}}, the estimator distributions of the x_{t}'s parameters are unaffected by selection even for more variables than observations and for endogenous variables. Under the alternative, when the joint model nests the generating process, an improved outcome results from selection. This implements Haavelmo's program relatively costlessly.
AB - Trygve Haavelmo's Probability Approach aimed to implement economic theories, but he later recognized their incompleteness. Although he did not explicitly consider model selection, we apply it when theory-relevant variables, {x_{t}}, are retained without selection while selecting other candidate variables, {w_{t}}. Under the null that the {w_{t}} are irrelevant, by orthogonalizing with respect to the {x_{t}}, the estimator distributions of the x_{t}'s parameters are unaffected by selection even for more variables than observations and for endogenous variables. Under the alternative, when the joint model nests the generating process, an improved outcome results from selection. This implements Haavelmo's program relatively costlessly.
KW - Faculty of Social Sciences
KW - C51
KW - C22
U2 - 10.1017/S0266466614000218
DO - 10.1017/S0266466614000218
M3 - Journal article
VL - 31
SP - 93
EP - 114
JO - Econometric Theory
JF - Econometric Theory
SN - 0266-4666
IS - 1
ER -
ID: 44881235