New Directions in Econometric Practice: General to Specific Modelling, Cointegration, and Vector Autoregression

By Wojciech W. Charemza; Derek F. Deadman | Go to book overview

Chapter 7
Exogeneity and Structural Invariance

7.1
Data Generating Processes

In Chapter 6 we outlined the principal assumptions of multi-equation modelling within the Cowles Commission framework, and introduced in greater detail, the 'atheoretical' VAR approach. We stated that the two principal assumptions of structural modelling, namely the endo-exogenous division of the variables and the zero restrictions imposed on a model's parameters, are abandoned in FAR modelling. There are no exogenous variables in the system and, due to the lack of zero restrictions, there is nothing like a 'structural form' of the model.

The VAR approach is quite difficult to apply in the real world. In practice, VAR modelling for more than four variables is rarely feasible. An investigator has to include many lags on many variables in each equation. The number of parameters to be estimated becomes large and even a single equation may become impossible to estimate, due to the shortage of observations. Moreover, the fact that the VAR approach is 'atheoretical' makes the development of an economically sensible model from a VAR system a quite difficult task (although, as shown in Chapter 6, not necessarily impossible).

The method of multi-equation modelling presented in this chapter, which we will call exogeneity modelling, can be thought of as a compromise in some respects between the need to keep the size of the model manageable and consistent with economic theory on the one hand, and the properties of the statistical data used for the modelling on the other. Generally speaking, exogeneity modelling still allows for some a priori zero restrictions to be imposed and therefore for control over the size of the model, but the endoexogenous division between variables is not given a priori any more. This division constitutes a testable hypothesis and because of this it is, to some extent, connected with the former problem of zero restrictions. If a certain variable is not exogenous, it should be modelled within the system and therefore some of the hypothetical zero restrictions may not be valid.

Exogeneity modelling can be envisaged as bringing together elements from both structural and VAR modelling. It bears some resemblance to the concept of recursive systems (for example, see Wold ( 1954)), which were regarded in the 1950s as a criticism of simultaneous equation structural modelling. According to Wold, simultaneity does not exist in the economy as

-213-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited page

Bookmark this page
New Directions in Econometric Practice: General to Specific Modelling, Cointegration, and Vector Autoregression
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this book
  • Bookmarks
  • Highlights & Notes
  • Citations
/ 344

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.