In a pen-l debate, I wrote:
... A theory's "robustness" is very relevant. If minor variations of
a specification of a theory (i.e., the model used to summarize the theory) lead to radically different results, that's quite an important result, indicating that something's wrong with the theory. Maybe something important. But if a robust model does not have any theoretical content (about causation and the like), that's a sign that something's wrong, too.
By the way, unlike many economists, I distinguish between a "theory" (an idea about how causation works in the empirical world) and a "model" (a way of summarizing such an idea and communicating it to others, while testing its internal logical consistency). In econometrics, a theory's model may be specified in more than one way.<
this last part should be broken down into pieces: an economic theory is an insight about how causation works in the empirical world (as if there is any other world). For example, we might assert that lowered expected real interest rates encourage higher real fixed domestic investment at the macro level, based on relatively simple economic logic. an economic model is a way of summarizing the idea and communicating it to others, while testing its internal logical consistency. There is more than one way to "model" the theory of interest rates --> fixed investment. For example, there's the Jorgenson neoclassical (Cobb-Douglas production function) model with partial adjustment, but there are other models. By the way, I've noticed that among economists, the idea of a theory is often conflated with that of a model. One told me that the main "theory" of investment was the Jorgenson neoclassical one with partial adjustment. It's like confusing words on the page (the model) with the thought behind them (the theory)! Of course, many neoclassical theories _are_ that shallow, mere mathematical shells without any concern for underlying relations of causation. Such as: what in hell is the causation story behind the Cobb-Douglas production function? there is a third level, for econometrics. An economic model can be stated as an econometric one -- a specification -- in order to test it. Sometimes the economic model is much the same as the specification: the Jorgenson model is a good case of this, I guess. That would explain its popularity, as does its ideological content. If I understand time-series analysis (ARIMA, ARMA, etc.) correctly, it involves a specification without an economic theory (because there is no story of causation behind it). It does not involve a true economic model (as I define it) either. Julio, please tell me why this conception of time-series analysis is incorrect. If the specification doesn't pass the data test, that does not automatically knock down the economic model, since other specifications of the model can be found. It also doesn't knock down the theory, since more than one model can be found for the same theory. However, it might provisionally tell us that the model and the theory are weak and need to be better, until a better theory and a better model come along. Unless we are willing to accept the assertion "who the hell knows?", it takes a theory to trump a theory. A theory may persist simply because there's not a better one available. However, it should be taken with major dollops of salt. If the specification _does_ pass the data test, that doesn't "prove" the model or the theory. (Empirical proof is impossible.) However, if there are no other theories available, it's a "reasonable" model and theory. Again, it has to be compared to other theories and their models. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
