The Foundations Of Econometric Analysis

Econometrics lacks the tradition of oral and written history which exists in economics, yet the classic papers in econometrics deserve to be read as much as the classics of economic theory. The readings in this book, some of which appear for the first time in print, have been chosen to illustrate the essential ideas which went into the foundation of the subject. Much of the work is conceptually sophisticated, and thus retains its relevance today. More surprisingly, much of the applied work also bears re-reading for its creativity, accuracy, and its ability to cope with awkward problems. David Hendry and Mary Morgan provide a commentary which offers well-informed insights into the work of the individual authors. Some of the original applied results have been reworked, to enable the reader to appreciate more fully the successful research strategies of the pioneers. Though subtle in their approach to ideas and problems, many of the readings are technically straightforward, making the volume accessible to students, and to the non­ specialist. Hence, the book provides a useful - and tested - teaching resource. The readings also provide an essential background to current methodological arguments within econo­ metrics, and are therefore equally relevant to practising econometricians interested in the foundations of their discipline. While The Foundations of Econometric Analysis provides a companion to Morgan's successful The History of Econometric Ideas, the editors' commentary both adds to that earlier volume and also provides a stand-alone and synthetic account of the development of econometrics. The Foundations of Econometric Analysis The Foundations of Econometric Analysis EDITED BY DAVID F. HENDRY Nuffield College, University of Oxford AND MARY S. MORGAN London School of Economics and University of Amsterdam .... � .. .. CAMBRIDGE UNIVERSITY PRESS CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521380430 © Cambridge University Press 1995 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. F irst published 1995 Reprinted 1996 A catalogue record for this publication is available from the British Library Library of Congress Cataloguing in Publication data The Foundations of Econometric Analysis / edited by David F. Hendry and Mary S. Morgan. p. cm. Companion volume to: The history of econometric ideas / Mary S. Morgan. Includes bibliographical references. ISBN 0 521 38043 X I. Econometrics. I. Hendry, David F. II. Morgan, Mary S. III. Morgan, Mary S. History of econometric ideas. HB139.F676 1994 330' .01'5159-dc20 93-50840 CIP ISBN 978-0-521-38043-0 hardback ISBN 978-0-521-58870-6 paperback Transferred to digital printing 2008 Contents Preface Acknowledgements Introduction I 1 2 3 4 5 J. N. Keynes The Scope and Method of Political Economy (Macmillan,London,1891,pp. 313-14,320-31) W. C. Mitchell Business Cycles (California University Memoirs, vol. III,Berkeley,1913,pp. 19-20,449-51) H. L. Moore Economic Cycles - Their Law and Cause (Macmillan, New York,1914,pp. 66-8,84-8 (cut)) L. Robbins An Essay on the Nature and Significance of Economic Science (Macmillan,London,1932,pp. 98-105) J. A. Schumpeter The Common Sense of Econometrics (Econometrica, vol. 1,1933,pp. 5-12) Early Time-Series Analysis 6 W. S. Jevons On the Study of Periodic Commercial Fluctuations (Read to the British A