A Computational Approach to Finding Causal Economic Laws

Authors:
I-Lok Chang;P. A. V. B. Swamy;Charles Hallahan;George S. Tavlas
Affiliations:
Department of Mathematics and Statistics, The American University, Washington, DC 20016, U.S.A.;Bank Research Unit, Office of the Comptroller of the Currency, Washington, DC 20219, U.S.A.;Economics Research Service, United States Department of Agriculture, Washington, DC 20005, U.S.A.;Bank of Greece, Athens, Greece and International Monetary Fund, Washington, DC 20431, U.S.A.
Venue:
Computational Economics - Special issue on computational studies at Cambridge
Year:
2000

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Abstract

This paper states four realities of econometric model buildingand shows that an econometric model can be causal only if theinterpretations given to its coefficients are consistent withthese realities. A numerically stable algorithm for estimatingsuch a model subject to equality and inequality constraints onthe model parameters is presented. This algorithm is designed insuch a way that it can be applied even when the matrix ofobservations on the model's independent variables and thecovariance matrix of the model's errors are deficient in rank.