Abstract
The spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the Cowles Commission. This development, which we call atheoretical macroeconometrics, is summarized and evaluated in the current paper. It is contrasted with an updated version of the Cowles Commission approach. We conclude that while some of the exercises of atheoretical macroeconometrics are valid, those that have attracted the most attention and appear the most innovative-exogeneity testing, impulse response analysis and policy analysis using estimated vector autoregressions - are based on incorrect analysis.
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