Laws and Limits of Econometrics

Peter Phillips

No 1397, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We start by discussing some general weaknesses and limitations of the econometric approach. A template from sociology is used to formulate six laws that characterize mainstream activities of econometrics and the scientific limits of those activities, we discuss some proximity theorems that quantify by means of explicit bounds how close we can get to the generating mechanism of the data and the optimal forecasts of next period observations using a finite number of observations. The magnitude of the bound depends on the characteristics of the model and the trajectory of the observed data. The results show that trends are more elusive to model than stationary processes in the sense that the proximity bounds are larger. By contrast, the bounds are of smaller order for models that are unidentified or nearly unidentified, so that lack or near lack of identification may not be as fatal to the use of a model in practice as some recent results on inference suggest, we look at one possible future of econometrics that involves the use of advanced econometric methods interactively by way of a web browser. With these methods users may access a suite of econometric methods and data sets online. They may also upload data to remote servers and by simple web browser selections initiate the implementation of advanced econometric software algorithms, returning the results online and by file and graphics downloads.

Keywords: Activities and limitations of econometrics; automated modeling; nearly unidentified models; nonstationarity; online econometrics; policy analysis; prediction; quantitative bounds; trends; unit roots; weak instruments (search for similar items in EconPapers)
JEL-codes: C10 C50 C87 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2003-02
New Economics Papers: this item is included in nep-cmp, nep-ecm and nep-hpe
Note: CFP 1081.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published in The Economic Journal (2003), 13(4&6): C26-C52

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