Econometrics - Revision history

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	===Hans-Hermann Hoppe===		===Hans-Hermann Hoppe===
	[[Hoppe\|Hans-Hermann Hoppe]] has criticized the widespread use of “mathematical and statistical techniques” and has specifically addressed issues arising from estimating parameters via linear regression analysis.<ref name="HOP_EEPP">Hoppe, Hans-Hermann - The Economics and Ethics of Private Property, pp. 295-304. [~~http~~://~~mises~~.org/~~document~~/~~860~~ "Is Research Based on Causal Scientific Principles Possible in the Social Sciences?"]</ref> He points out that the way the estimated parameters are interpreted normally would require assumptions that are “inappropriate in the social sciences”. The innocuous and fair interpretation of the estimated parameters would amount to nothing more than “historico-mathematical facts” with “no significance beyond the historical data with respect to which their values were determined”.<ref name="HOP_EEPP" />		[[Hoppe\|Hans-Hermann Hoppe]] has criticized the widespread use of “mathematical and statistical techniques” and has specifically addressed issues arising from estimating parameters via linear regression analysis.<ref name="HOP_EEPP">Hoppe, Hans-Hermann - The Economics and Ethics of Private Property, pp. 295-304. [https://freecapitalists.org/books/economics-and-ethics-of-private-property-studies-in-political-economy-and-philosophy-the/ "Is Research Based on Causal Scientific Principles Possible in the Social Sciences?"]</ref> He points out that the way the estimated parameters are interpreted normally would require assumptions that are “inappropriate in the social sciences”. The innocuous and fair interpretation of the estimated parameters would amount to nothing more than “historico-mathematical facts” with “no significance beyond the historical data with respect to which their values were determined”.<ref name="HOP_EEPP" />

	His criticism of the inappropriate interpretation of linear regression centers around one fallacious assumption made by modern economists and econometricians: the constancy principle.<ref name="HOP_EEPP" />		His criticism of the inappropriate interpretation of linear regression centers around one fallacious assumption made by modern economists and econometricians: the constancy principle.<ref name="HOP_EEPP" />

Pestergaines: Definition.

2012-08-05T13:06:54Z

Definition.

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	'''Econometrics''' is a major field in contemporary mainstream/[[Empiricism\|empirical]] economic research. It involves the use of statistical tools to analyze numerical data, estimate relationships between economic variables, and predict unobserved values of the given data based on the parameters estimated in the regression analysis.		'''Econometrics''' is the statistical and mathematical analysis of economic relationships, often serving as a basis for economic forecasting. Such information is sometimes used by governments to set economic policy and by private business to aid decisions on prices, inventory, and production. It is used mainly, however, by economists to study relationships between economic variables.<ref name="Britannica_econometrics">Encyclopædia Britannica Online. [http://www.britannica.com/EBchecked/topic/178298/econometrics "econometrics. 2012."], referenced 2012-08-05.</ref>

			Econometrics is a major field in contemporary mainstream/[[Empiricism\|empirical]] economic research.

	==Overview==		==Overview==

Jrnewman at 12:53, 19 July 2012

2012-07-19T12:53:45Z

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	'''Econometrics''' is a major field in contemporary mainstream/[[Empiricism\|empirical]] economic research. It involves the use of statistical tools to analyze numerical data, estimate relationships between economic variables, and predict unobserved values of the given data based on the parameters estimated in the regression analysis.~~{{Fact}}~~		'''Econometrics''' is a major field in contemporary mainstream/[[Empiricism\|empirical]] economic research. It involves the use of statistical tools to analyze numerical data, estimate relationships between economic variables, and predict unobserved values of the given data based on the parameters estimated in the regression analysis.

	==Overview==		==Overview==

Jrnewman at 18:53, 20 June 2012

2012-06-20T18:53:09Z

← Older revision		Revision as of 18:53, 20 June 2012
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	===Hans-Hermann Hoppe===		===Hans-Hermann Hoppe===
	[[~~MisesWiki:~~Hoppe\|Hans-Hermann Hoppe]] has criticized the widespread use of “mathematical and statistical techniques” and has specifically addressed issues arising from estimating parameters via linear regression analysis.<ref name="HOP_EEPP">Hoppe, Hans-Hermann - The Economics and Ethics of Private Property, pp. 295-304. [http://mises.org/document/860 "Is Research Based on Causal Scientific Principles Possible in the Social Sciences?"]</ref> He points out that the way the estimated parameters are interpreted normally would require assumptions that are “inappropriate in the social sciences”. The innocuous and fair interpretation of the estimated parameters would amount to nothing more than “historico-mathematical facts” with “no significance beyond the historical data with respect to which their values were determined”.<ref name="HOP_EEPP" />		[[Hoppe\|Hans-Hermann Hoppe]] has criticized the widespread use of “mathematical and statistical techniques” and has specifically addressed issues arising from estimating parameters via linear regression analysis.<ref name="HOP_EEPP">Hoppe, Hans-Hermann - The Economics and Ethics of Private Property, pp. 295-304. [http://mises.org/document/860 "Is Research Based on Causal Scientific Principles Possible in the Social Sciences?"]</ref> He points out that the way the estimated parameters are interpreted normally would require assumptions that are “inappropriate in the social sciences”. The innocuous and fair interpretation of the estimated parameters would amount to nothing more than “historico-mathematical facts” with “no significance beyond the historical data with respect to which their values were determined”.<ref name="HOP_EEPP" />

	His criticism of the inappropriate interpretation of linear regression centers around one fallacious assumption made by modern economists and econometricians: the constancy principle.<ref name="HOP_EEPP" />		His criticism of the inappropriate interpretation of linear regression centers around one fallacious assumption made by modern economists and econometricians: the constancy principle.<ref name="HOP_EEPP" />
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	===Roger Garrison===		===Roger Garrison===
	[[~~MisesWiki:~~Roger_Garrison\|Garrison]] points out that mathematics is unsuited for the task of identifying cause and effect relations.<ref name="GAR_MM">Garrison, Roger - in The Meaning of Ludwig von Mises: Contributions is Economics, Sociology, Epistemology, and Political Philosophy, ed. Herbener, pp. 102-117. [http://www.auburn.edu/~garriro/j2mismeth.htm "Mises and His Methods"]</ref> In an article outlining problems with the mathematical/empirical methodology, he explains:		[[Roger_Garrison\|Garrison]] points out that mathematics is unsuited for the task of identifying cause and effect relations.<ref name="GAR_MM">Garrison, Roger - in The Meaning of Ludwig von Mises: Contributions is Economics, Sociology, Epistemology, and Political Philosophy, ed. Herbener, pp. 102-117. [http://www.auburn.edu/~garriro/j2mismeth.htm "Mises and His Methods"]</ref> In an article outlining problems with the mathematical/empirical methodology, he explains:

	<blockquote>“The relevant question is: What sort of language—music, mathematics, or, say, English—allows economists best to communicate their ideas? […] And in particular the answer turns—both for Mises and for modern mathematical economists—on whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena.”<ref name="GAR_MM" /></blockquote>		<blockquote>“The relevant question is: What sort of language—music, mathematics, or, say, English—allows economists best to communicate their ideas? […] And in particular the answer turns—both for Mises and for modern mathematical economists—on whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena.”<ref name="GAR_MM" /></blockquote>
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	===Murray Rothbard===		===Murray Rothbard===
	In <i>Man, Economy, and State</i>, Rothbard made some brief notes on econometricians' inability to identify causal relationships from mere mathematical equations.<ref name="MR_MES">Rothbard, Murray - Man, Economy, and State, pp. 277-280 [http://mises.org/rothbard/mes/chap5a.asp#3._Structure_of_Production Man, Economy, and State, Chapter 5-Production: The Structure], [[Ludwig Von Mises Institute]].</ref>		In <i>Man, Economy, and State</i>, [[Rothbard]] made some brief notes on econometricians' inability to identify causal relationships from mere mathematical equations.<ref name="MR_MES">Rothbard, Murray - Man, Economy, and State, pp. 277-280 [http://mises.org/rothbard/mes/chap5a.asp#3._Structure_of_Production Man, Economy, and State, Chapter 5-Production: The Structure], [[Ludwig Von Mises Institute]].</ref>

	<blockquote>"Mathematical equations, then, are appropriate and useful where there are constant quantitative relations among unmotivated variables. They are singularly inappropriate in praxeology and economics. In the latter fields, verbal, logical analysis of action and its processes through time is the appropriate method. It is not surprising that the main efforts of the "mathematical economists" have been directed toward describing the final equilibrium state by means of equations. For in this state, since activities merely repeat themselves, there seems to be more scope for describing conditions by means of functional equations. These equations, at best, however, can do no more than describe this equilibrium state."<ref name="MR_MES" /></blockquote>		<blockquote>"Mathematical equations, then, are appropriate and useful where there are constant quantitative relations among unmotivated variables. They are singularly inappropriate in praxeology and economics. In the latter fields, verbal, logical analysis of action and its processes through time is the appropriate method. It is not surprising that the main efforts of the "mathematical economists" have been directed toward describing the final equilibrium state by means of equations. For in this state, since activities merely repeat themselves, there seems to be more scope for describing conditions by means of functional equations. These equations, at best, however, can do no more than describe this equilibrium state."<ref name="MR_MES" /></blockquote>

Jrnewman: /* Austrian Criticisms */

2012-06-19T20:11:05Z

Austrian Criticisms

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	<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”<ref name="GAR_MM" /></blockquote>		<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”<ref name="GAR_MM" /></blockquote>

			===Murray Rothbard===
			In <i>Man, Economy, and State</i>, Rothbard made some brief notes on econometricians' inability to identify causal relationships from mere mathematical equations.<ref name="MR_MES">Rothbard, Murray - Man, Economy, and State, pp. 277-280 [http://mises.org/rothbard/mes/chap5a.asp#3._Structure_of_Production Man, Economy, and State, Chapter 5-Production: The Structure], [[Ludwig Von Mises Institute]].</ref>

			<blockquote>"Mathematical equations, then, are appropriate and useful where there are constant quantitative relations among unmotivated variables. They are singularly inappropriate in praxeology and economics. In the latter fields, verbal, logical analysis of action and its processes through time is the appropriate method. It is not surprising that the main efforts of the "mathematical economists" have been directed toward describing the final equilibrium state by means of equations. For in this state, since activities merely repeat themselves, there seems to be more scope for describing conditions by means of functional equations. These equations, at best, however, can do no more than describe this equilibrium state."<ref name="MR_MES" /></blockquote>

	==References==		==References==

Jrnewman at 19:38, 19 June 2012

2012-06-19T19:38:30Z

← Older revision		Revision as of 19:38, 19 June 2012
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	===Hans-Hermann Hoppe===		===Hans-Hermann Hoppe===
	[[MisesWiki:Hoppe\|Hans-Hermann Hoppe]] has criticized the widespread use of “mathematical and statistical techniques” and has specifically addressed issues arising from estimating parameters via linear regression analysis. He points out that the way the estimated parameters are interpreted normally would require assumptions that are “inappropriate in the social sciences”. The innocuous and fair interpretation of the estimated parameters would amount to nothing more than “historico-mathematical facts” with “no significance beyond the historical data with respect to which their values were determined”.		[[MisesWiki:Hoppe\|Hans-Hermann Hoppe]] has criticized the widespread use of “mathematical and statistical techniques” and has specifically addressed issues arising from estimating parameters via linear regression analysis.<ref name="HOP_EEPP">Hoppe, Hans-Hermann - The Economics and Ethics of Private Property, pp. 295-304. [http://mises.org/document/860 "Is Research Based on Causal Scientific Principles Possible in the Social Sciences?"]</ref> He points out that the way the estimated parameters are interpreted normally would require assumptions that are “inappropriate in the social sciences”. The innocuous and fair interpretation of the estimated parameters would amount to nothing more than “historico-mathematical facts” with “no significance beyond the historical data with respect to which their values were determined”.<ref name="HOP_EEPP" />

	His criticism of the inappropriate interpretation of linear regression centers around one fallacious assumption made by modern economists and econometricians: the constancy principle.		His criticism of the inappropriate interpretation of linear regression centers around one fallacious assumption made by modern economists and econometricians: the constancy principle.<ref name="HOP_EEPP" />

	<blockquote>Constancy Principle – “the conviction that observable phenomena are in principle determined by causes which are constant and are time-invariant in the way in which they operate, and that in principle contingency plays no part in the way in which causes operate.”</blockquote>		<blockquote>Constancy Principle – “the conviction that observable phenomena are in principle determined by causes which are constant and are time-invariant in the way in which they operate, and that in principle contingency plays no part in the way in which causes operate.”<ref name="HOP_EEPP" /></blockquote>

	===Roger Garrison===		===Roger Garrison===
	[[MisesWiki:Roger_Garrison\|Garrison]] points out that mathematics is unsuited for the task of identifying cause and effect relations. In an article outlining problems with the mathematical/empirical methodology, he explains:		[[MisesWiki:Roger_Garrison\|Garrison]] points out that mathematics is unsuited for the task of identifying cause and effect relations.<ref name="GAR_MM">Garrison, Roger - in The Meaning of Ludwig von Mises: Contributions is Economics, Sociology, Epistemology, and Political Philosophy, ed. Herbener, pp. 102-117. [http://www.auburn.edu/~garriro/j2mismeth.htm "Mises and His Methods"]</ref> In an article outlining problems with the mathematical/empirical methodology, he explains:

	<blockquote>“The relevant question is: What sort of language—music, mathematics, or, say, English—allows economists best to communicate their ideas? […] And in particular the answer turns—both for Mises and for modern mathematical economists—on whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena.”</blockquote>		<blockquote>“The relevant question is: What sort of language—music, mathematics, or, say, English—allows economists best to communicate their ideas? […] And in particular the answer turns—both for Mises and for modern mathematical economists—on whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena.”<ref name="GAR_MM" /></blockquote>

	And, like Hoppe, Garrison describes what the innocuous, but appropriate, interpretation of regression analysis results should be and how mainstream econometricians simply do not stop there, but make further assumptions to make inappropriate conclusions and interpretations: “Systems of equations can be suitably employed to describe the consequences of human action, but such mathematical descriptions are inherently blind to notions of intentionality and causality.”		And, like Hoppe, Garrison describes what the innocuous, but appropriate, interpretation of regression analysis results should be and how mainstream econometricians simply do not stop there, but make further assumptions to make inappropriate conclusions and interpretations: “Systems of equations can be suitably employed to describe the consequences of human action, but such mathematical descriptions are inherently blind to notions of intentionality and causality.”<ref name="GAR_MM" />

	He also sees a disconnect between what the textbooks <i>say</i> and what the econometricians <i>do</i>.		He also sees a disconnect between what the textbooks <i>say</i> and what the econometricians <i>do</i>.
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	<blockquote>But,</blockquote>		<blockquote>But,</blockquote>

	<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”</blockquote>		<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”<ref name="GAR_MM" /></blockquote>

			==References==
			{{Reflist}}

	==Links==		==Links==

Pestergaines: Polish; references please; Links section; +cat.

2012-06-19T19:13:26Z

Polish; references please; Links section; +cat.

← Older revision		Revision as of 19:13, 19 June 2012
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	Econometrics is a major field in contemporary mainstream/[[Empiricism\|empirical]] economic research. It involves the use of statistical tools to analyze numerical data, estimate relationships between economic variables, and predict unobserved values of the given data based on the parameters estimated in the regression analysis.		'''Econometrics''' is a major field in contemporary mainstream/[[Empiricism\|empirical]] economic research. It involves the use of statistical tools to analyze numerical data, estimate relationships between economic variables, and predict unobserved values of the given data based on the parameters estimated in the regression analysis.{{Fact}}

	==Overview==		==Overview==
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	<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”</blockquote>		<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”</blockquote>

			==Links==
			* {{wplink}}

			[[Category:Economic concepts]]

Jrnewman: /* Roger Garrison */

2012-06-19T17:13:20Z

Roger Garrison

← Older revision		Revision as of 17:13, 19 June 2012
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	<blockquote>“The relevant question is: What sort of language—music, mathematics, or, say, English—allows economists best to communicate their ideas? […] And in particular the answer turns—both for Mises and for modern mathematical economists—on whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena.”</blockquote>		<blockquote>“The relevant question is: What sort of language—music, mathematics, or, say, English—allows economists best to communicate their ideas? […] And in particular the answer turns—both for Mises and for modern mathematical economists—on whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena.”</blockquote>

	And, like Hoppe, Garrison describes what the innocuous, but appropriate, interpretation of regression analysis results should be and how mainstream econometricians simply do not stop there, but make further assumptions to make inappropriate conclusions and interpretations.		And, like Hoppe, Garrison describes what the innocuous, but appropriate, interpretation of regression analysis results should be and how mainstream econometricians simply do not stop there, but make further assumptions to make inappropriate conclusions and interpretations: “Systems of equations can be suitably employed to describe the consequences of human action, but such mathematical descriptions are inherently blind to notions of intentionality and causality.”

	“Systems of equations can be suitably employed to describe the consequences of human action, but such mathematical descriptions are inherently blind to notions of intentionality and causality.”

	He also sees a disconnect between what the textbooks <i>say</i> and what the econometricians <i>do</i>.		He also sees a disconnect between what the textbooks <i>say</i> and what the econometricians <i>do</i>.

Jrnewman: /* Least Squares */

2012-06-19T17:10:53Z

Least Squares

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	The model can be expanded to include multiple explanatory variables, interaction terms (i.e., covarying explanatory variables explain the outcome variable), multiple dependent variables (panel models), time-series regression (observations over time, autoregressive (AR), moving average (MA), both (ARMA), vector autoregression (VAR), etc.), dummy variables (for variables with only two values, like yes/no, male/female, etc.), and many other considerations. There are numerous estimation processes designed to deal with specific problems in the data (assumption violations) or to more correctly identify relationships between variables under different circumstances than those fitting for OLS.		The model can be expanded to include multiple explanatory variables, interaction terms (i.e., covarying explanatory variables explain the outcome variable), multiple dependent variables (panel models), time-series regression (observations over time, autoregressive (AR), moving average (MA), both (ARMA), vector autoregression (VAR), etc.), dummy variables (for variables with only two values, like yes/no, male/female, etc.), and many other considerations. There are numerous estimation processes designed to deal with specific problems in the data (assumption violations) or to more correctly identify relationships between variables under different circumstances than those fitting for OLS.
	===Least Squares===		===Least Squares===
	Ordinary Least Squares, as implied by the name, seeks to minimize the sum of the squared residuals (squared distance between actual data points and the prediction (estimation) based on the linear relationship between the variables. This process, given certain assumptions, yields statistically unbiased (best approximation of true relationship), consistent (estimates get closer to true relationship with an increasing number observations), and efficient (distance between actual and predicted values are smallest) estimates for the regression parameters.		Ordinary Least Squares, as implied by the name, seeks to minimize the sum of the squared residuals (squared distance between actual data points and the prediction (estimation) based on the linear relationship between the variables. This process, given certain assumptions, yields statistically unbiased (best approximation of true relationship), consistent (estimates get closer to true relationship with an increasing number of observations), and efficient (distance between actual and predicted values are smallest) estimates for the regression parameters.

	====Assumptions====		====Assumptions====

Jrnewman: /* Roger Garrison */

2012-06-19T16:28:04Z

Roger Garrison

← Older revision		Revision as of 16:28, 19 June 2012
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	He also sees a disconnect between what the textbooks <i>say</i> and what the econometricians <i>do</i>.		He also sees a disconnect between what the textbooks <i>say</i> and what the econometricians <i>do</i>.

	<blockquote>“All respectable texts on statistics and econometrics acknowledge that statistical inference can never identify cause and effect; they warn against interpreting correlation as causation.”		<blockquote>“All respectable texts on statistics and econometrics acknowledge that statistical inference can never identify cause and effect; they warn against interpreting correlation as causation.”</blockquote>

	But,		<blockquote>But,</blockquote>

	“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”</blockquote>		<blockquote>“In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature.”</blockquote>