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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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Econometrics – Alchemy or Science?

Econometrics – Alchemy or Science?

Chapter:
(p.11) 1 Econometrics – Alchemy or Science?
Source:
Econometrics: Alchemy or Science?
Author(s):

David F. Hendry (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0198293542.003.0002

The key message is that econometrics is potentially scientific precisely because alchemy is creatable, detectable, and refutable. Since the validity of a model is an intrinsic property in relation to the evidence, it cannot be affected by how that model is selected; the three golden rules of econometrics are ‘test, test, and test’. However, the selection method is not thereby irrelevant: some methods are inherently flawed. The ‘alchemy’ here explains the behaviour of UK inflation ‘better’ by rainfall than by the stock of money. Later analyses reveal the hidden flaws thus resolved, when empirical regressions are meaningful.

Keywords:   alchemy, econometric tests, inflation, model selection, nonsense regressions, science, validity

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