Extracting Information from the Data: A Popperian View on Empirical Macro

Katarina Juselius and Soren Johansen ()

No 05-05, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The cointegrated VAR model is proposed as an empirically coherent framework for analyzing macroeconomic phenomena within a dynamic system of pulling and pushing forces. As an illustration we show how an economic theory for inflation and money demand gives rise to a number of hypotheses formulated as testable parameter restrictions on cointegrating relations and common trends. The procedure not only allows us to test prior theoretical hypotheses in a valid maximum likelihood framework but also provides additional empirical results suggesting how to modify or improve our theoretical understanding. The latter is important when theoretical implications fail to hold in the data.

Keywords: cointegrated VAR; inflation; money growth; empirical methodology (search for similar items in EconPapers)
JEL-codes: B41 C32 E40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hpe and nep-mac
Date: Written
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