Experiments, Passive Observation and Scenario Analysis: Trygve Haavelmo and the Cointegrated Vector Autoregression

31 Pages Posted: 7 Nov 2012  

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Katarina Juselius

University of Copenhagen - Department of Economics

Date Written: November 5, 2012

Abstract

The paper provides a careful, analytical account of Trygve Haavelmo's unsystematic, but important, use of the analogy between controlled experiments common in the natural sciences and econometric techniques. The experimental analogy forms the linchpin of the methodology for passive observation that he develops in his famous monograph, The Probability Approach in Econometrics (1944). We show how, once the details of the analogy are systematically understood, the experimental analogy can be used to shed light on theory-consistent cointegrated vector autoregression (CVAR) scenario analysis. CVAR scenario analysis can be seen as a clear example of Haavelmo's 'experimental' approach; and, in turn, it can be shown to extend and develop Haavelmo's methodology and to address issues that Haavelmo regarded as unresolved.

Keywords: Trygve Haavelmo, experiments, passive observation, CVAR, scenario analysis, probability approach, econometrics

JEL Classification: C30, C31, B41, B31, C50

Suggested Citation

Hoover, Kevin D. and Juselius, Katarina, Experiments, Passive Observation and Scenario Analysis: Trygve Haavelmo and the Cointegrated Vector Autoregression (November 5, 2012). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 12-16. Available at SSRN: https://ssrn.com/abstract=2171700 or http://dx.doi.org/10.2139/ssrn.2171700

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Katarina Juselius (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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