LSE approach to econometrics
The LSE approach to econometrics, named for the London School of Economics, involves viewing econometric models as reductions from some unknown data generation process (DGP). A complex DGP is typically modelled as the starting point and this complexity allows information in the data from the real world but absent in the theory to be drawn upon. The complexity is then reduced by the econometrician by a series of restrictions which are tested.
One particular functional form, the
David F. Hendry is considered to be the principal architect of the LSE approach. The methodology is often referred to as general-to-specific modelling, "Gets modeling" or "Hendry's methodology".
The software package
In the 1970s, when the LSE approach was in its infancy, Edward E. Leamer was an early critic of model discovery methodologies.[citation needed]
The approach evolved to include: multiple reduction path searches, indicator saturation, COMFAC testing, and cointegrated vector autoregressive structures.
Economists often associated with "Hendry's methodology" include Clive Granger, Robert F. Engle, Søren Johansen, Grayham Mizon, Jennifer Castle, Hans M. Krolzig, Neil Ericsson, and Jurgen Doornik.
References
- Favero, Carlo A. (2001). Applied Macroeconometrics. New York: Oxford University Press. pp. 132–161. ISBN 978-0-19-829685-0.
- Davis, G. C. (2005). "Clarifying the 'puzzle' between the Textbook and LSE approaches to econometrics: A comment on Cook's Kuhnian perspective on econometric modelling". .
- Gilbert, Christopher L. (1989). "LSE and the British approach to time series econometrics". Oxford Economic Papers. 41 (1): 108–128. JSTOR 2663185.
- Juselius, Katarina (1999). "Models and Relations in Economics and Econometrics" (PDF). .