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Interpreting economic time series

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  • Thomas J. Sargent

Abstract

This paper explores some of the implications for econometric practice of the principle that people?s observed behavior will change when their constraints change. In dynamic contexts, a proper definition of people?s constraints includes among them laws of motion that describe the evolution of the taxes they must pay and the prices of the goods that they buy and sell. Changes in agents? perceptions of these laws of motion (or constraints) will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess. Until very recently, received dynamic econometric practice ignored this principle. The practice of dynamic econometrics should be changed so that it is consistent with the principle that people?s rules of choice are influenced by their constraints. This is a substantial undertaking, and involves major adjustments in the ways that we formulate, estimate, and simulate econometric models.

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  • Thomas J. Sargent, . "Interpreting economic time series," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:58
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    Cited by:

    1. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-1185, July.
    2. Langley, Suchada Vichitakul, 1982. "The formation of price expectations: a case study of the soybean market," ISU General Staff Papers 198201010800009358, Iowa State University, Department of Economics.
    3. Lawrence J. Christiano, 1980. "The term structure of interest rates and the aliasing identification problem," Working Papers 165, Federal Reserve Bank of Minneapolis.
    4. Willem H. Buiter, 1981. "Macroeconometric Modelling for Policy Evaluation and Design," NBER Technical Working Papers 0013, National Bureau of Economic Research, Inc.

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