Rational Econometric Man

Rational Econometric Man

Transforming Structural Econometrics

Edward J. Nell and Karim Errouaki

This challenging and original book takes a fresh, innovative look at econometrics, and re-examines the scientific standing of structural econometrics as developed by the founders (Frisch and Tinbergen) and extended by Haavelmo and the Cowles modellers (particularly Klein) during the period 1930–1960.

Chapter 11: Working with open models: lawlike relations and an uncertain future

Edward J. Nell and Karim Errouaki

Subjects: economics and finance, econometrics


Throughout earlier chapters we assessed the critiques of structural econometrics, and we examined its foundations. We found the critiques important but lacking, and argued that economic laws – relationships between scientific variables – could be defined for economics, but only for limited historical periods. There are indeed law like relationships to be discovered, although, unlike the laws of natural science, they are limited and bounded by history and geography. Moreover, they can change as a result of changes in institutions and technology. (But the processes of such change can themselves be explored.) And some relations must always be inherently volatile. Conceptual analysis and fieldwork provide a basis for defining the variables and hypothesizing the laws, while structural econometrics offered a method of estimating those laws, provided they were relationships of the reliable sort. We proposed the MTC as a methodology: fieldwork to establish relevance/applicability by coming to understand the concepts, rules and norms by which practice is guided; conceptual analysis to weave those concepts into theory; measurement and statistics in numbers that match the concepts of the (practiced-based)theory, making it possible to estimate the parameters of the law like relationships.

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