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Econometrics: Alchemy or Science?Essays in Econometric Methodology$
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David F. Hendry

Print publication date: 2000

Print ISBN-13: 9780198293545

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198293542.001.0001

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Predictive Failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money

Predictive Failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money

Chapter:
(p.246) 11 Predictive Failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money
Source:
Econometrics: Alchemy or Science?
Author(s):

David F. Hendry (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0198293542.003.0012

This tests the DHSY approach in another subject‐matter area (money demand) to investigate its ability to produce improved models and to encompass previous findings. ‘Simple‐to‐general’ modelling methods are criticized and contrasted with the outcome achieved by general‐to‐simple, sequentially reducing to parsimonious, constant, and encompassing equations. Contemporaneous conditioning is based on weak exogeneity and constancy is stressed as a model‐selection criterion. A successful test of the selected error‐correction transactions’ demand for money model on new data is reproduced from The Econometric Analysis of Economic Time Series.

Keywords:   error‐correction mechanism, general‐to‐simple modelling, model mis‐specification, model selection, predictive failure, simple‐to‐general modelling, structural breaks, transactions demand for money, weak exogeneity

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