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1. Let's Take the Bias Out of Econometrics

Author:
Duo Qin
Publication Date:
12-2016
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This study exposes the cognitive flaws of ‘endogeneity bias’. It reviews how conceptualisation of the bias has evolved to embrace all major econometric problems, despite extensive lack of hard evidence. It reveals the crux of the bias – a priori rejection of causal variables as conditionally valid ones, and of the bias correction by consistent estimators – modification of those variables by non-uniquely and non-causally generated regressors. It traces the flaws to misconceived error terms in statistical modelling and estimation consistency. It highlights the need to shake off the bias to let statistical learning play an active and formal role in econometrics.
Topic:
Economics, Economic Theory, Models, and Bias
Political Geography:
Global Focus

2. Predictive Macro-Impacts of PLS-Based Financial Conditions Indices: An Application to the USA

Author:
Duo Qin
Publication Date:
01-2016
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This investigation seeks to construct financial conditions indices (FCIs) by the partial least squares (PLS) method with the aims (i) that the FCIs should outperform interest rate, which is conventionally used in small VAR (Vector Auto-Regression) models to present the predictive macro-impacts of the financial markets, and (ii) that the FCIs are adequately invariant during regular updates to resemble non-model based aggregate indices. Both aims are shown to be attainable as long as the FCIs are tailor-made with carefully selected components and suitably targeted macro variables of forecasting interest. The positive outcome sheds light on why the widely used principal component analysis (PCA) approach is ill-suited to the tasks here whereas why the PLS route promises a fruitful way forward.
Topic:
Economics, Markets, Finance, and Macroeconomics
Political Geography:
North America and United States of America

3. Inextricability of Autonomy and Confluence in Econometrics

Author:
Duo Qin
Publication Date:
06-2014
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper examines how ‘confluence’ and ‘autonomy’, two key concepts introduced by Frisch around 1930, have disappeared in econometrics textbooks and why only some fragments of the two have survived mainstream econometrics. It relates the disappearance to the defect in the textbook position of equating a priori theoretical models as correct structural models unequivocally. It shows how the confluence-autonomy pair in unity reflects the complexity of econometricians’ goal to find and verify robust and economically meaningful models out of numerous interdependent variables observable from the real and open world. The complexity deems it essential for applied research to have a set of model design rules combining both a priori substantive reasoning and a posteriori statistical testing. Such a need also puts the task of ensuring an adequately minimum model closure to top priority for applied modellers, a task much more important than the textbook task of parameter estimation.
Topic:
Economics, Intellectual History, Economic Theory, and Models
Political Geography:
Global Focus