Sunday, December 28, 2014

Econometrics in the Post-Cowles Era

My thanks to Olav Bjerkholt for alerting me to a special edition of the open access journal, Oekonomia, devoted to the History of Econometrics. Olav recently guest-edited this issue, and here's part of what he has to say in the Editor's Foreword:

"Up to World War II there were competing ideas, approaches, and multiple techniques in econometrics but no ruling paradigm. Probability considerations played a very minor role in econometric work due to an unfounded but widely accepted view that economic time series were not amenable to such analysis. The formalization of econometrics undertaken at Cowles Commission in Chicago in the late 1940s inspired by the Probability Approach of Trygve Haavelmo, and often referred to as the CC-Haavelmo paradigm, placed the whole problem of determining economic relationships firmly within a probabilistic framework and made most traditional techniques redundant. A key assumption in this paradigm as it was conceived is that models to be estimated have been fixed with certainty by a priori formulated theories alone, it can thus be labeled as “theory-oriented”. It exerted a strong influence in the ensuing years, not least as consolidated standard econometrics propagated by textbooks. The history of econometrics, as written in the 1980s and 1990s, covered mainly the period up to and including the Cowles Commission econometric achievements.
Haavelmo made a remark at the beginning of his influential monograph that econometric research aimed at connecting economic theory and actual measurements, using appropriate tools as a bridge pier, “[b]ut the bridge itself was never completely built.” From around 1960 there arose increasingly discontents of different kinds with the CC-Haavelmo paradigm, not least because of the key assumption mentioned above. The bridge needed mending but the ideas of how to do it went in different directions and led eventually to developments of new paradigms and new directions of econometric analysis. This issue comprises four articles illuminating developments in econometrics in the post-Cowles era."
These four articles are:

  • Marc Nerlove,  “Individual Heterogeneity and State Dependence: From George Biddell Airy to James Joseph Heckman”.
  • Duo Qin, “Inextricability of Confluence and Autonomy in Econometrics”.
  • Aris Spanos, “Reflections on the LSE Tradition in Econometrics: a Student’s Perspective”.
  • Nalan Basturk, Cem Cakmakli, S. Pinar Ceyhan, and Herman van Dijk, “Historical Developments in Bayesian Econometrics after Cowles Foundation Monographs 10, 14”.

Coincidentally, the last of these papers was the topic of another post of mine last month, before I was aware of this special journal issue. I'm looking forward to reading the other three contributions. If they're even half as good as the one by Basturk et al., I'm in for a treat!

© 2014, David E. Giles