Lessons in Econometric Methodology: The Axiom of Correct Specification

International Econometric Review, Vol 9, Iss 2., September 2017

23 Pages Posted: 15 Dec 2017

See all articles by Asad Zaman

Asad Zaman

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE)

Date Written: September 2017

Abstract

According to Econometric theory, one should start with the right model, and then estimate it. The process of model selection causes many types of problems in estimation and inference. In practice, however, everyone estimates different models eventually selecting one as the “right” one. All of the millions of regressions possible to explain economic growth (or any other suitable variable) cannot all be right; yet, researchers estimate and interpret their own favorite equations as the only right one. A huge amount of work has been carried out on the appropriate methodology for selection of regressors. Although it is known to experts, it is not readily available in textbooks, and hence not commonly used in applied econometrics. The goal of this article is to provide a review of the relevant literature, to make it accessible to practicing econometricians and students.

Keywords: Econometric Methodology, Model Selection, Spurious Regression

JEL Classification: C10, C52

Suggested Citation

Zaman, Asad, Lessons in Econometric Methodology: The Axiom of Correct Specification (September 2017). International Econometric Review, Vol 9, Iss 2., September 2017, Available at SSRN: https://ssrn.com/abstract=3088082

Asad Zaman (Contact Author)

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE) ( email )

Quaid-i-Azam University Campus
P.O.Box 1091
Islamabad, Federal Capital 44000
Pakistan

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