View Journal Article / Working Paper
Hendry & Mizon, Cogent Economics & Finance (2016), 4: 1170096
The authors recommend a major shift in the Econometrics curriculum for both graduate and undergraduate teaching. It is essential to include a range of topics that are still rarely addressed in such teaching, but are now vital for understanding and conducting empirical macroeconomic research. They focus on a new approach to macro-econometrics teaching, since even undergraduate econometrics courses must include analytical methods for time series that exhibit both evolution from stochastic trends and abrupt changes from location shifts, and so confront the “non-stationarity revolution”. The complexity and size of the resulting equation specifications, formulated to include all theory-based variables, their lags and possibly non-linear functional forms, as well as potential breaks and rival candidate variables, places model selection for models of changing economic data at the centre of teaching. To illustrate their proposed new curriculum, they draw on a large UK macroeconomics database over 1860–2011. They discuss how they reached their present approach, and how the teaching of macro-econometrics, and econometrics in general, can be improved by nesting so-called “theory-driven” and “data-driven” approaches. In the methodology, the theory-model’s parameter estimates are unaffected by selection when the theory is complete and correct, so nothing is lost, whereas when the theory is incomplete or incorrect, improved empirical models can be discovered from the data. Recent software like Autometrics facilitates both the teaching and the implementation of econometrics, supported by simulation tools to examine operational performance, designed to be feasibly presented live in the classroom.