Transforming Structural Econometrics
Chapter 6: The concept of the ‘model’ and the methodology of model building
Our argument so far claims to have established that there are lawlike relationships to be found, and that there have to be such relations. They have to exist because ‘socio-economic systems’ exist (we live in them; economics and econometrics study them), and the existence of such systems is brought about and maintained by the regular patterns of activity that reproduce the positions and relationships of the system. The socio-economic system is the ultimate source of regular economic data, the basic ‘data generating mechanism’; it provides and supports the social framework in which all economic activity takes place. The fact that such a framework exists implies that there must be regularities in economic activity. But the fact that regularities exist does not necessarily mean that it will be easy to discover them. For one thing, the actual or, to use a term we shall meet later, the ‘phenomenal’, socioeconomic system – the real world – presents a buzz of confusion, irrelevancy and extraneous material intermixed with the essential and important data. This has to be sorted through, so that the key relationships and variables will stand out.
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