Sunday, February 14, 2016

David Hendry on Measurement, Theory, and Model Selection

David Hendry has an interesting new paper on the interplay of measurement and theory in model selection, "Deciding Between Alternative Approaches in Macroeconomics." As usual, David frames deep and important questions, and he furnishes penetrating insights as he works toward answers. Of course there's lots to disagree with, but that's beside the point -- original thinking is usually unsettling and controversial.

On David's theme of doing credible empirical work while maintaining focus on theory, see the No Hesitations post, "Shrinking VAR's Toward Theory." More generally, on his broad theme of the interplay between measurement and theory, see my The Known, the Unknown and the Unknowable (KuU) in Financial Risk Management, with Neil Doherty and Dick Herring. The introduction is freely available here. And don't forget another earlier No Hesitations post, "Theory gets too Much Respect, and Measurement Doesn't get Enough". (!)