The Methodology of Econometrics

Abstract

The methodology of econometrics is not the study of particular econometric techniques, but a meta-study of how econometrics contributes to economic science. As such it is part of the philosophy of science. The essay begins by reviewing the salient points of the main approaches to the philosophy of science - particularly, logical positivism, Popper's falsificationism, Lakatos methodology of scientific research programs, and the semantic approach - and orients econometrics within them. The principal methodological issues for econometrics are the application of probability theory to economics and the mapping between economic theory and probability models. Both are raised in Haavelmo's (1944) seminal essay. Using that essay as a touchstone, the various recent approaches to econometrics are surveyed - those of the Cowles Commission, the vector autoregression program, the LSE approach, calibration, and a set of common, but heterogeneous approaches encapsulated as the textbook econometrics. Finally, the essay considers the light shed by econometric methodology on the main epistemological and ontological questions raised in the philosophy of science.