COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1397 Laws and Limits of Econometrics Peter C.B. Phillips February 2003 We start by discussing some general weaknesses and limitations of the econometric
approach. A template from sociology is used to formulate six laws that characterize
mainstream activities of econometrics and the scientific limits of those activities., we
discuss some proximity theorems that quantify by means of explicit bounds how close we can
get to the generating mechanism of the data and the optimal forecasts of next period
observations using a finite number of observations. The magnitude of the bound depends on
the characteristics of the model and the trajectory of the observed data. The results show
that trends are more elusive to model than stationary processes in the sense that the
proximity bounds are larger. By contrast, the bounds are of smaller order for models that
are unidentified or nearly unidentified, so that lack or near lack of identification may
not be as fatal to the use of a model in practice as some recent results on inference
suggest., we look at one possible future of econometrics that involves the use of advanced
econometric methods interactively by way of a web browser. With these methods users may
access a suite of econometric methods and data sets online. They may also upload data to
remote servers and by simple web browser selections initiate the implementation of
advanced econometric software algorithms, returning the results online and by file and
graphics downloads. |
