Model Discovery and Trygve Haavelmo's Legacy

David Hendry and Soren Johansen

No 598, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: 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, {xt}, are retained without selection while selecting other candidate variables, {wt}. Under the null that the {wt} are irrelevant, by orthogonalizing with respect to the {xt}, the estimator distributions of the xt'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.

Keywords: Trygve Haavelmo; Model discovery; Theory retention; Impulse-indicator saturation; Autometrics (search for similar items in EconPapers)
JEL-codes: C22 C51 (search for similar items in EconPapers)
Date: 2012-03-01
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (1)

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Journal Article: MODEL DISCOVERY AND TRYGVE HAAVELMO’S LEGACY (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:598

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