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Economic Theory and Causal Inference

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  • Kevin Hoover

    (Department of Economics, University of California Davis)

Abstract

Post-Walrasian economics is not a doctrine, but a slogan announcing thatsomething has to change. In this paper, I explore a conservative version of post-Walrasian economics that can be summarized as back to the methodology of Alfred Marshall?s ? particularly to his essay, ?The Present Position of Economics? (1885). The Walrasian approach is a bottom-up, engineering vision: economics must be built on secure foundations of primitive theory, like a building. Marshall?s approach is a top-down, archaelogical vision: the structure of economics must be uncovered starting with the observable facts and empirically determining what lies behind them. Marshall?s methodology places the relationship between theory and empirical tools on center stage. The dominant tools of macroeconometrics are the vector autoregression (VAR) and calibration techniques, which were developed as reactions to two nearly simultaneousreactions to the Cowles-Commission program in econometrics: the Lucas critique and the Sims critique. The various strands of macroeconometrics are examined through the competing Walrasian and Marshallian visions of the role of theory in econometrics. A suggestion for a truly Marshallian (and post-Walrasian) econometrics is then offered.

Suggested Citation

  • Kevin Hoover, 2005. "Economic Theory and Causal Inference," Working Papers 257, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:257
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    References listed on IDEAS

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    1. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
    2. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 10(Win), pages 2-16.
    3. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
    4. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
    5. Cochrane, John H., 1998. "What do the VARs mean? Measuring the output effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 277-300, April.
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    7. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
    8. Hoover,Kevin D., 2001. "Causality in Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521002882, September.
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    1. Kevin Hoover, 2005. "Economic Theory and Causal Inference," Working Papers 64, University of California, Davis, Department of Economics.

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    More about this item

    Keywords

    Post-Walrasian; Marshall;

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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