Category Econometrics
On the ‘correlation is not causality’ dodge
This is something that we're all taught, and it's quite true: there are any number (in principle, an infinity) of unobservable causal relations that can generate an observed correlation. But this phrase most emphatically cannot be used to dismiss evidence that appears to contradict your preferred world view. If your model predicts no correlation and […]
Hysteresis in the teaching of econometrics
When I last taught econometrics – some 10 years ago – there was a practical reason for why Bayesian methods played little or no role in the textbooks. Even though classical methods asked the wrong questions* and forced people to wade through a myriad of complicated and contradictory ways of answering them, it was at […]
‘All models are wrong, but some models are useful’
What with the comments on Mark Thoma’s posts of Paul Krugman’s earlier attempts to explain economic methodology to non-economists and the apparent publication bias in favour of significant results in political science and in economics, George Box’ dictum is worth repeating for those who are too sceptical of models, and for those who aren’t sceptical […]
On the significance of statistically significant results
Andrew Gelman notes that there are suprisingly many papers with results that are just barely statistically significant (t=1.96 to 2.06) and surprisingly few that are just barely not significant (t=1.85 to 1.95). in a selection of empirical studies in political science; Mark Thoma wonders if this extends to economics as well. I’m pretty sure it […]
Social choice and optimal inference
One of the highlights of my graduate school years was the lecture where I learned about Arrow’s Impossibility Theorem. It’s hard to imagine an question more important to the social sciences that the social choice problem: how can we aggregate individual preferences into a coherent social order? Arrow’s answer is that we can’t, but that […]
Beware of the clever econometrician
Mahalanobis points us to a couple of interesting articles by Peter Kennedy on the nitty-gritty of applied econometrics. ‘Oh no! I got the wrong sign! What should I do?’ is a very nice summary of the data and modelling problems that can generate misleading estimates, and anyone who has had to deal with puzzling estimates […]
Why do forecasters only report point estimates?
In a recent exchange, Jim Hamilton of Econbrowser and Kash at Angry Bear discuss the perils and pitfalls of economic forecasting. They agree on many things, most especially on the importance of maintaining a certain level of humility. The best summary is given by Jim Hamilton: "Don’t ask for too much of your forecast or […]
Forecasting without error
Why is it that forecasters don’t routinely provide error bands with their predictions? I doubt very much that the following dialogue is representative of what goes on in the real world: Decision-maker: ‘Economist, what’s your forecast of GDP growth over the next year?’ Economist: ‘3.13 percent’ DM: ‘Hmm. What are the chances that GDP growth […]
An embarrassment of riches
The federal government has been running surpluses since 1997 (data available here), and these surpluses have been used to help drive Canada’s debt-to-GDP ratio from 89% down to 44%. But now that we’ve retreated well back from the debt wall, Canadians are starting to wonder if surpluses are really what we want. After all, there […]
Worthwhile Canadian Initiative 
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