Study week on the econometric approach to development planning

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Monograph

Identifikator:: 1824422792

URN:: urn:nbn:de:zbw-retromon-217476

Document type:: Monograph

Title:: Study week on the econometric approach to development planning

Place of publication:: Amsterdam [u.a.]

Publisher:: North-Holland Publ. Co. [u.a.]

Year of publication:: 1965

Scope:: XLVII, 1259 S.; graph. Darst.

Digitisation:: 2022

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Toward a verdict on macroeconomic simultaneous equations / Herman O.A. Wold, Universitets Statistika Institution - Uppsala - Sverige

Collection:: Economics Books

SEMAINE D'ÉTUDE SUR LE ROLE DE L’ANALYSE ECONOMETRIQUE ETC. 172 regression is chosen for the estimation of a specified theoretical re- lationship, the choice of estimation method will not make this rela- tionship an eo ipso predictor). I take the opportunity to emphasize the truth of a related negative statement: If least squares regression is not a consistent estimate of a specified theoretical relationship then this relationship is not an eo ipso predictor. Coming to the last paragraph of Professor FISHER’s comments, [ am afraid it reveals rather deepgoing differences between our views. As regards the dangers of overfitting, they are certainly a real heada- che (see e.g. the comments by H. THEIL, Ref. 33, section 6 D), and the trouble does not become less real because it is « quite a common one in dealing with large econometric models. » (2) As to the approach of instrumental variables, this is a surrogate of an ad hoc nature, inasmuch as the instrumental! variables are not specified a priori in the model. It remains to be seen whether the results of the approach are as a rule good enough to pass the test ot confronting the ensuing forecasts with actual evidence by way of predictive tests. Hoping for the best, I have no desire to disen- courage; all I want to say is that this is one of the open questions in the present stage of development. In reply to the first point made by Professor THEIL, I am con- fident that KLOEK-MENNES’ adaptation of the principal components approach goes a long way to overcome the difficulty of overfitting and related headaches in the statistical estimation of interdependent systems. The approach has the nature of a shortcut, however, and obviously it runs the risk that in sieving forth the principal com- ponents of the predetermined variables z, it may throw away one or more z's that contribute relatively little to the total variability of the predetermined varnables. and vet are highly important as (?) Professor L. KLEIN in the paper (a) referred to in footnote (') strongly emphasizes how troublesome the current techniques for parameter estima- tion of multi-relation models are in the present stage of development. To quote from the Monaco discussion of Professor Klein's paper, the results he reports from the estimation of a 12 relation model give clear evidence of overfitting, inasmuch as most of his OLS (ordinary least squares) and TSLS (two stage least sauares: estimates coincide up ta the third figure ‘21 Wold - pag. s0

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