Econometric modellers — people burying their heads in the sand

14 June, 2015 at 17:41 | Posted in Economics | Leave a comment

The co-existence of confluent and structural relations implies that empirically observed failures of parametric invariance should not be immediately interpreted as ‘structural’ breaks or shifts in the real world. Rather, they often indicate model specification inadequacy in representing significantly confluent effects. Autonomy is frequently embedded in confluent relations due to the highly interdependent nature of many economic variables of interest. Modellers who stick to theory-based regression models and expect sophisticated estimators to work wonder when the variables of interest are known to correlate significantly with variables disregarded by theory are actually burying their heads in the sand.

head-in-sand

Logically, it is obviously premature to choose parameter estimators before the model to be estimated can be regarded as a self-autonomous unit. It simply makes no sense to go for estimators consistent with mis-specified or inadequately designed models. Moreover, the precision gain achievable through choice of better estimators is usually of a far smaller order of magnitude than the gain achievable through improved model designs. This has been repeatedly shown from numerous empirical model experiments for decades.

Duo Qin

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