Since econometrics doesn’t content itself with only making optimal predictions, but also aspires to explain things in terms of causes and effects, econometricians need loads of assumptions — most important of these are additivity and linearity. Important, simply because if they are not true, your model is invalid and descriptively incorrect. And when the model is wrong — well, then it’s wrong....Simplifying assumptions versus oversimplification.
Lars P. Syll’s Blog
The main reason why almost all econometric models are wrong
Lars P. Syll | Professor, Malmo University
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