methodology for dealing with them. In short, Tinbergen approached the problem of testing
theories from a rather weak methodological position. Keynes saw these weaknesses
and attacked them with characteristic insight (Keynes, 1939). A large part of Keynes’s
review was in fact concerned with technical difficulties associated with the application of
statistical methods to economic data. Apart from the problems of the ‘dependent’ and
‘non-homogeneous’ observations mentioned above, Keynes also emphasized the problems
of misspecification, multi-collinearity, functional form, dynamic specification, structural
stability, and the difficulties associated with the measurement of theoretical variables.
By focussing his attack on Tinbergen’s attempt at testing economic theories of business
cycles, Keynes almost totally ignored the practical significance of Tinbergen’s work for
econometric model building and policy analysis (for more details, see Pesaran and Smith,
1985a).
methodology for dealing with them. In short, Tinbergen approached the problem of testing
theories from a rather weak methodological position. Keynes saw these weaknesses
and attacked them with characteristic insight (Keynes, 1939). A large part of Keynes’s
review was in fact concerned with technical difficulties associated with the application of
statistical methods to economic data. Apart from the problems of the ‘dependent’ and
‘non-homogeneous’ observations mentioned above, Keynes also emphasized the problems
of misspecification, multi-collinearity, functional form, dynamic specification, structural
stability, and the difficulties associated with the measurement of theoretical variables.
By focussing his attack on Tinbergen’s attempt at testing economic theories of business
cycles, Keynes almost totally ignored the practical significance of Tinbergen’s work for
econometric model building and policy analysis (for more details, see Pesaran and Smith,
1985a).
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