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Modelling the Trend: The Historical Origins of Some Modern Methods and Ideas

Author

Listed:
  • Terence Mills

    (School of Business and Economics, Loughborough University)

  • Kerry Patterson

    (Department of Economics, University of Reading)

Abstract

The development of the methods of correlation and regression analysis at the turn of the 20th century, led to their use in attempting to identify relationships between economic variables. However, caution was soon expressed that correlating series with 'secular' trends was likely to be misleading. After some discussion of methods, linear detrending by least squares estimation became the default method. By the 1920s, however, some voices of dissent expressed the view that linear detrending was likely to be inappropriate in some, even many, cases. This led to a number of innovative methodological developments, including rolling window estimation, moving integration, nonlinear trends, structural breaks, sigmoid-type smooth adjustment functions, the beginnings of stochastic trends and the construction of 'smoothers' and filters. Although generally failing to have an impact at the time substantially predate their current use in econometrics. This article establishes precedence for these ideas and recreates some of the empirical examples and early simulations.

Suggested Citation

  • Terence Mills & Kerry Patterson, 2013. "Modelling the Trend: The Historical Origins of Some Modern Methods and Ideas," Economics Discussion Papers em-dp2013-03, Department of Economics, University of Reading.
    • Handle: RePEc:rdg:emxxdp:em-dp2013-03
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    File URL: http://www.reading.ac.uk/web/FILES/economics/emdp2013100.pdf
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    References listed on IDEAS

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    Cited by:

    1. T. C. Mills & K. D. Patterson, 2015. "Modelling The Trend: The Historical Origins Of Some Modern Methods And Ideas," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 527-548, July.

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    More about this item

    Keywords

    trend; detrending; decomposition; nonlinear trends; structural breaks; stochastic trends; filtering;
    All these keywords.

    JEL classification:

    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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