Structural models, information and inherited restrictions

Lady, George M.; Buck, Andrew J.

doi:10.1016/j.econmod.2011.08.021

Cited by 4 publications

(21 citation statements)

References 29 publications

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“…Still, in an applied context, if the estimated reduced form sign patterns were one of the two above, when an estimate of β was derived, e.g., via some form of multi-stage least squares, the estimated sign pattern would likely have differed from that hypothesized in (5), and the underlying qualitative analysis would not really have been necessary to falsify the hypothesis. Since the model is over-identified, an issue is whether or not the sign pattern of the estimated structure could possibly have generated the estimated reduced form.…”

Section: A Signable Examplementioning

confidence: 99%

“…Although in [14] it was not realized, in [5] it was shown that the outcome (8) was not possible for the hypothesized structure (7), based upon a qualitative analysis. Nevertheless, the nine behavioral entries in (7) can be estimated, based upon the estimated reduced form (8).…”

Section: Example: Klein's Model Imentioning

confidence: 99%

“…For this last, [10] and later [11] studied the relationship between the structural arrays and the corresponding reduced form. It was also subjected to a qualitative analysis in [5]. Although given Klein's hypothesized sign patterns for the structural arrays, no entries in the corresponding reduced form were signable, some entries were "almost" signable.…”

Section: Example: Klein's Model Imentioning

confidence: 99%

“…The analytic conditions under which the sign pattern of the structure would require specific signs for entries of the reduced form were found to be extremely restrictive, almost never satisfied, and such an analysis, called a qualitative analysis, is virtually never conducted. Recently, [1], [4], and [5] showed that even if particular signs in the reduced form were not required by an hypothesized structure, nevertheless limits on the estimated reduced form were always implied and any model so specified could be potentially falsified by the sign pattern of the estimated reduced form. Since current econometric practice does not call for the conduct of a qualitative analysis, a model's falsification in these terms would not be detected.…”

Section: Introductionmentioning

confidence: 99%

“…This approach is first spelled out in [5]. The basic idea is to take sign patterns proposed for the structural arrays and, subject to distributional rules (uniform in the analysis reported on here) assign magnitudes to the entries and construct the reduced form as given in (4).…”

Section: Introductionmentioning

confidence: 99%

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Estimating a Falsified Model

Buck¹,

Lady²

2016

APM

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It is common econometric practice to propose a system of equations, termed the "structure," estimate each endogenous variable in the structure via a linear regression with all of the exogenous variables as arguments, and then employ one of variety of regression techniques to recapture the coefficients in the (Jacobian) arrays of the structure. A recent literature, e.g., [1], has shown that a qualitative analysis of a model's structural and estimated reduced form arrays can provide a robust procedure for assessing if a model's hypothesized structure has been falsified. This paper shows that the even weaker statement of the model's structure provided by zero restrictions on the structural arrays can be falsified, independent of the proposed nonzero entries. When this takes place, multi-stage least squares, or any procedure for estimating the structural arrays with the zero restrictions imposed, will present estimates that could not possibly have generated the data upon which the estimated reduced form is based. The examples given in the paper are based upon a Monte Carlo sampling procedure.

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Section: A Signable Examplementioning

confidence: 99%

Section: Example: Klein's Model Imentioning

confidence: 99%

Section: Example: Klein's Model Imentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Estimating a Falsified Model

Buck¹,

Lady²

2016

APM

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A New Approach to Model Verification, Falsification and Selection

Buck

Lady

2015

Econometrics

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This paper shows that a qualitative analysis, i.e., an assessment of the consistency of a hypothesized sign pattern for structural arrays with the sign pattern of the estimated reduced form, can always provide decisive insight into a model's validity both in general and compared to other models. Qualitative analysis can show that it is impossible for some models to have generated the data used to estimate the reduced form, even though standard specification tests might show the model to be adequate. A partially specified structural hypothesis can be falsified by estimating as few as one reduced form equation. Zero restrictions in the structure can themselves be falsified. It is further shown how the information content of the hypothesized structural sign patterns can be measured using a commonly applied concept of statistical entropy. The lower the hypothesized structural sign pattern's entropy, the more a priori information it proposes about the sign pattern of the estimated reduced form. As an hypothesized structural sign pattern has a lower entropy, it is more subject to type 1 error and less subject to type 2 error. Three cases illustrate the approach taken here.

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Econometric Modeling and Model Falsification

Lady¹,

Moody²

2019

APM

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A recent literature on qualitative analysis has shown that its successful application in testing the consistency of the sign patterns of a proposed structure and an estimated reduced form was far less restricted than a previous literature had proposed. A frequent example used in this demonstration was the qualitative analysis of Klein's Model I. For this, the proposed structural sign pattern was falsified by the sign pattern of the estimated reduced form. As a result, the subsequent application two-stage least squares would always find quantifications of the structure that could not possibly have resulted in the sign pattern of the estimated reduced form. We view this result as a diagnostic calling for further analysis. We show that the Klein model fails standard over identification tests. We make modest amendments to the model that resolves this problem but find that the resulting estimated reduced form still falsifies the structure, calling for further developmental effort. Our point is that qualitative falsification should be viewed as a diagnostic in developing a model, rather than a criterion for entirely dismissing the model.

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Structural models, information and inherited restrictions

Cited by 4 publications

References 29 publications

Estimating a Falsified Model

Estimating a Falsified Model

A New Approach to Model Verification, Falsification and Selection

Econometric Modeling and Model Falsification

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