Progress and challenges in econometrics

Abstract

This special issue has been compiled to commemorate and celebrate the 50th anniversary of the Econometric Institute of the Erasmus University Rotterdam. The Institute was founded in 1956 by Henri Theil and Jan Tinbergen, and it marked the beginning of undergraduate teaching programs in econometrics at universities in the Netherlands. With the leading role of Rotterdam, where from the beginning there has been a focus of research in econometrics, universities in Amsterdam, Groningen, Tilburg and Maastricht followed and established teaching programs that had courses in mathematics, statistics and economics. Until the present day, the Econometric Institute at Erasmus University delivers undergraduate students who find their way to employers rather quickly as well as graduate students who enter academia. Indeed, a substantial number of well-known econometricians these days, either theoretical or applied, have their roots in Rotterdam. To celebrate this unique occasion of a teaching and research program that has existed for so long in a rather constant format, the editors of the Journal of Econometrics gave us the opportunity to put together a special issue that contains reflections, new methodology and challenging future outlooks in the wide field of econometrics. The authors are a mix of leading econometricians and young talented ones. Indeed, in the past 50 years econometrics has evolved into an exciting scientific field where rigorous analysis of economic problems has led to a better understanding of their nature and causes and to a more effective policy advice in various areas. A selective list of areas where econometrics is an indispensable tool includes risk and return in the long run at financial markets, effectiveness of marketing strategies, optimal training programs for the labor market and effective international monetary policy for targeting and controlling inflation rates. The outline of this special issue is as follows. The issue starts with personal reflections of Clive Granger and Arnold Zellner on their respective areas of expertise: Forecasting and Bayesian Information Processing rules. Given their very substantial contributions to econometrics, Clive Granger and Arnold Zellner did receive an honorary doctorate degree at Erasmus University in June 2006. The other papers in this issue all address areas in which current or past members of the Econometric Institute played a significant role in their development. As Henri Theil’s name is mainly associated with the method of two-stage least squares, which may be interpreted as a special case of instrumental variable estimation, we next collect papers on the topic of weak instruments, with contributions of Donald Andrews and