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Evolution of Economic Analysis Through Empirical Methods

Explore the historical debate between theory and empirical methods in economics, from classical econometrics to modern computational techniques. Learn how economic analysis evolved over time and its impact on empirical research.

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Evolution of Economic Analysis Through Empirical Methods

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  1. Chapter 16: The Development of Econometrics and Empirical Methods Questions for Review, Discussion and Research 1, 2, 4 - There has been a continuous debate in the profession about the proper relationship between theory and empirical methods Overhead pp. 437

  2. Empirical Approaches • Common Sense Empiricism • Relates theory to reality through direct observation with a minimum of statistical aids • Still commonplace in some subjects • history • anthropology

  3. Contemporary supporters point to the valuable insights found in • careful observation • extensive field work • case studies • direct contact with institutions • personal experience “within” an event

  4. Empirical Approaches Cont’d • Statistical analysis • Emphasizes those aspects of an economic event that can be quantified and is therefore subject to measurement and analysis • Supporters claim that this approach permits a researcher to draw from a large number of theories and select the most relevant one.

  5. Also claim that it discouraged pre-considered theoretical notions from biasing one’s interpretation of data • Classical Econometrics • - Rigorous defines the relationship between theory and empirical data • - developed in the 1930’s

  6. Empirical Approaches Cont’d • Baynesian Approach • - Directly relates theory and data as above but assumes that no test can provide definite answers • - Does not seek objective laws but subjective degrees of belief • - Statistical analysis cannot determine objective truths, but it does add in making subjective judgments

  7. Recent Developments • Computer Technology • Agent Based Modelling • Calibration • See if data is consistent with a theory • Experimental Economics

  8. Distinction Between Mathematical Economics, Statistical and Econometrics • Overhead pp. 440 and 441

  9. Neoclassical Era (1870-1950’s) and Empirical Analysis • There was no accepted test to validate or reject the merits of various theories • This gradually changes as neoclassical theories became more formal and some sought to make economics an exact science • This resulted in formalizing the approach that economists use in their empirical analysis

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