LSE approach to econometrics
The LSE approach to econometrics involves viewing econometric models as reductions from some unknown data generation process (DGP). A complex DGP is typically modelled as the starting point and this complexity allows information in the data from the real world but absent in the theory to be drawn upon. The complexity is then reduced by the econometrician by a series of restrictions which are tested. One particular functional form , the error-correction model, is often arrived at when modelling time series. Sargan and Hendry (with his general-to-specific modeling) were key figures in the development of the approach and the one way the approach has been extended is through the work on integrated and cointegrated systems by Engle and Granger and Johansen and Juselius.[1][2][3]
References
- ^ Gilbert, Christopher L. (1989). "LSE and the British approach to time series econometrics". Oxford Economic Papers. 41 (1): 108–128. JSTOR 2663185.
- ^ Davis, G. C. (2005). "Clarifying the 'puzzle'between the Textbook and LSE approaches to econometrics: A comment on Cook's Kuhnian perspective on econometric modelling". Journal of Economic Methodology. 12 (1): 93–115. doi:10.1080/1350178042000330913.
- ^ Juselius, Katarina (1999). "Models and Relations in Economics and Econometrics". Journal of Economic Methodology. 6 (2): 259–290. doi:10.1080/13501789900000017.
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we use this technique to remove those variables which have lees influence on the dependent variable