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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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Testing Dynamic Specification in Small Simultaneous Systems: An Application to a Model of Building Society Behaviour in the United Kingdom

Testing Dynamic Specification in Small Simultaneous Systems: An Application to a Model of Building Society Behaviour in the United Kingdom

Chapter:
(p.52) 3 Testing Dynamic Specification in Small Simultaneous Systems: An Application to a Model of Building Society Behaviour in the United Kingdom
Source:
Econometrics: Alchemy or Science?
Author(s):

David F. Hendry (Contributor Webpage)

Gordon J. Anderson

Publisher:
Oxford University Press
DOI:10.1093/0198293542.003.0004

The approach evaluated here is that of simplifying an initial general system, which accounts for mis‐specifications in previous empirical models as predicted by the economic theory—a variant of encompassing. The underlying economic theory is a static long‐run solution of a dynamic adjustment process, to deliver a model form later recognized as an ‘error‐correction’ (or more properly, equilibrium‐correction) mechanism. The empirical analysis is for Building Societies (the UK equivalent of Savings and Loans).

Keywords:   autocorrelation, Building Societies, general‐to‐simple modelling, long‐run solutions, model mis‐specification, United Kingdom

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