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The myths of econometrics

In: Controversies in Economics and Finance

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Abstract

At one time, econometrics was supposed to be a means to an end, a tool to aid economic analysis. This is no longer the case, as econometrics has become the end itself and economists have started to believe in the results produced by fancy estimation and testing methods while forgetting about economic theory, intuition and common sense. In this chapter several myths about econometrics are debunked: the usefulness of econometric forecasting, cointegration as a test for spurious correlation, deriving meaningful inference from multiple regression, econometrics as a science, and causality in economics. It is demonstrated that if we are to believe in the power of causality testing, then we should believe that the economies of the United States, United Kingdom and Japan are at the mercy of the Australian economy.

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  • ., 2020. "The myths of econometrics," Chapters, in: Controversies in Economics and Finance, chapter 5, pages 99-122, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19689_5
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