AUTOMATED DISCOVERY IN ECONOMETRICS

Our subject is the notion of automated discovery in econometrics. Advances in computer power, electronic communication, and data collection processes have all changed the way econometrics is conducted. These advances have helped to elevate the status of empirical research within the economics profession in recent years, and they now open up new possibilities for empirical econometric practice. Of particular significance is the ability to build econometric models in an automated way according to an algorithm of decision rules that allow for (what we call here) heteroskedastic and autocorrelation robust (HAR) inference. Computerized search algorithms may be implemented to seek out suitable models, thousands of regressions and model evaluations may be performed in seconds, statistical inference may be automated according to the properties of the data, and policy decisions can be made and adjusted in real time with the arrival of new data. We discuss some aspects and implications of these exciting, emergent trends in econometrics.The first version of this paper was written in April 2004 for the 20th Anniversary Issue of Econometric Theory. Helpful comments by the co-editor, Oliver Linton, Benno Pötscher, Brendan Beare, and two referees on the first draft are gratefully acknowledged.

[1]  Paul Kabaila,et al.  The Effect of Model Selection on Confidence Regions and Prediction Regions , 1995, Econometric Theory.

[2]  Peter C. B. Phillips,et al.  Bayesian model selection and prediction with empirical applications , 1995 .

[3]  K. Hoover,et al.  Improving on ‘ Data mining reconsidered ’ by , 2000 .

[4]  P. Phillips.  Bayes Methods for Trending Multiple Time Series with an Empirical Application to the US Economy , 1992 .

[5]  S. Morris.  COWLES FOUNDATION FOR RESEARCH IN ECONOMICS , 2001 .

[6]  A. Timmermann,et al.  Predictability of Stock Returns: Robustness and Economic Significance , 1995 .

[7]  R. Lucas.  Econometric policy evaluation: A critique , 1976 .

[8]  K. Hoover,et al.  AUTOMATIC INFERENCE OF THE CONTEMPORANEOUS CAUSAL ORDER OF A SYSTEM OF EQUATIONS , 2004, Econometric Theory.

[9]  M. Kaboudan.  Genetic Programming Prediction of Stock Prices , 2000 .

[10]  Yongmiao Hong,et al.  Wavelet-based Estimation for Heteroskedasticity and Autocorrelation Consistent Variance-Covariance Matrices , 2000 .

[11]  David F. Hendry,et al.  Improving on "Data mining reconsidered" by K.D. Hoover and S.J. Perez , 1999 .

[12]  B. M. Pötscher,et al.  MODEL SELECTION AND INFERENCE: FACTS AND FICTION , 2005, Econometric Theory.

[13]  Hugo A. Keuzenkamp.  Probability, econometrics and truth , 2000 .

[14]  P. Phillips,et al.  Consistent Hac Estimation and Robust Regression Testing Using Sharp Origin Kernels with No Truncation , 2003 .

[15]  Ryen W. White,et al.  Introduction , 2006, Commun. ACM.

[16]  Peter C. B. Phillips,et al.  Spectral Regression for Cointegrated Time Series , 1988 .

[17]  P. Phillips,et al.  Long Run Variance Estimation Using Steep Origin Kernels Without Truncation , 2003 .

[18]  Dietmar Bauer,et al.  SUBSPACE ALGORITHMS , 2003 .

[19]  P. Phillips.  Econometric Analysis of Nonstationary Data , 1998 .

[20]  Peter C. B. Phillips,et al.  Laws and Limits of Econometrics , 2003 .

[21]  P. Phillips.  HAC ESTIMATION BY AUTOMATED REGRESSION , 2004, Econometric Theory.

[22]  Nancy Cartwright,et al.  The Dappled World: Introduction , 1999 .

[23]  Norman R. Swanson,et al.  Impulse Response Functions Based on a Causal Approach to Residual Orthogonalization in Vector Autoregressions , 1997 .

[24]  A. Timmermann,et al.  A RECURSIVE MODELING APPROACH TO PREDICTING STOCK RETURNS , 2000 .

[25]  David F. Hendry,et al.  The Foundations of Econometric Analysis , 1995 .

[26]  P. Phillips,et al.  Prewhitening Bias in Hac Estimation , 2003 .

[27]  David F. Hendry,et al.  New Developments in Automatic General-to-specific Modelling , 2001 .

[28]  Edward E. Leamer,et al.  Specification Searches: Ad Hoc Inference with Nonexperimental Data , 1980 .

[29]  Giampiero M. Gallo,et al.  A COMPARISON OF COMPLEMENTARY AUTOMATIC MODELING METHODS: RETINA AND PcGets , 2005, Econometric Theory.

[30]  P. Phillips.  Automated Forecasts of Asia-Pacific Economic Activity , 1995 .

[31]  H. Leeb,et al.  CAN ONE ESTIMATE THE UNCONDITIONAL DISTRIBUTION OF POST-MODEL-SELECTION ESTIMATORS? , 2003, Econometric Theory.

[32]  Dl Dmitry Danilov,et al.  Forecast accuracy after pretesting with an application to the stock market , 2004 .

[33]  Dietmar Bauer,et al.  A Canonical Form for Unit Root Processes in the State Space Framework , 2002 .

[34]  P. Robinson.  Gaussian Semiparametric Estimation of Long Range Dependence , 1995 .

[35]  C. Granger,et al.  A DIALOGUE CONCERNING A NEW INSTRUMENT FOR ECONOMETRIC MODELING , 2005, Econometric Theory.

[36]  Dietmar Bauer,et al.  ESTIMATING LINEAR DYNAMICAL SYSTEMS USING SUBSPACE METHODS , 2005, Econometric Theory.

[37]  Nicholas M. Kiefer,et al.  HETEROSKEDASTICITY-AUTOCORRELATION ROBUST TESTING USING BANDWIDTH EQUAL TO SAMPLE SIZE , 2002, Econometric Theory.

[38]  Andrew T. Levin,et al.  A Practitioner's Guide to Robust Covariance Matrix Estimation , 1996 .

[39]  Peter C. B. Phillips,et al.  Optimal Inference in Cointegrated Systems , 1991 .

[40]  Jan R. Magnus,et al.  On the harm that ignoring pretesting can cause , 2004 .

[41]  J. Pearl.  Causality: Models, Reasoning and Inference , 2000 .

[42]  Gary James Jason,et al.  The Logic of Scientific Discovery , 1988 .

[43]  Arnold Zellner,et al.  Statistics, Econometrics and Forecasting , 2004 .

[44]  Kevin D. Hoover,et al.  Data mining reconsidered: encompassing and the general-to-specific approach to specification search , 1997 .

[45]  Yongmiao Hong,et al.  TESTING FOR SERIAL CORRELATION OF UNKNOWN FORM USING WAVELET METHODS , 2001, Econometric Theory.

[46]  Michael Jansson.  The Error in Rejection Probability of Simple Autocorrelation Robust Tests , 2004 .

[47]  M. Wagner,et al.  Estimating cointegrated systems using subspace algorithms , 2002 .

[48]  Hannes Leeb,et al.  The Finite-Sample Distribution of Post-Model-Selection Estimators, and Uniform Versus Non-Uniform Approximations , 2000 .

[49]  Junsoo Lee,et al.  On the power of stationarity tests using optimal bandwidth estimates , 1996 .

[50]  M. Hashem Pesaran,et al.  REAL-TIME ECONOMETRICS , 2004, Econometric Theory.

[51]  Peter C. B. Phillips,et al.  Impulse response and forecast error variance asymptotics in nonstationary VARs , 1998 .

[52]  Nicholas M. Kiefer,et al.  Simple Robust Testing of Regression Hypotheses , 2000 .

[53]  Paul Mizen,et al.  Goodhart’s Law: Its Origins, Meaning and Implications for Monetary Policy , 2001 .

[54]  Clark Glymour,et al.  The automation of discovery , 2004, Daedalus.

[55]  Anjan Chakravartty,et al.  The Dappled World: A Study of the Boundaries of Science , 2000 .

[56]  Peter C. B. Phillips,et al.  An Asymptotic Theory of Bayesian Inference for Time Series , 1996 .

[57]  P. Phillips,et al.  Forecasting New Zealand's real GDP , 2000 .

[58]  David V. Pritchett.  Econometric policy evaluation: A critique , 1976 .

[59]  N. Cartwright.  The dappled world : a study of the boundaries of science , 1999 .

[60]  J. Hualde.  Cointegration in Fractional Systems with Unkown Integration Orders , 2003 .

[61]  Peter C. B. Phillips,et al.  Posterior Odds Testing for a Unit Root with Data-Based Model Selection , 1994, Econometric Theory.

[62]  J. Bai,et al.  Determining the Number of Factors in Approximate Factor Models , 2000 .

[63]  X. Sala-i-Martin,et al.  I Just Ran Two Million Regressions , 1997 .

[64]  K. Popper,et al.  Conjectures and Refutations , 1963 .

[65]  J. Driscoll,et al.  Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data , 1998, Review of Economics and Statistics.

[66]  Guido M. Kuersteiner,et al.  AUTOMATIC INFERENCE FOR INFINITE ORDER VECTOR AUTOREGRESSIONS , 2005, Econometric Theory.

[67]  Paolo Paruolo,et al.  AUTOMATED INFERENCE AND THE FUTURE OF ECONOMETRICS: A COMMENT , 2004, Econometric Theory.

[68]  Nicholas M. Kiefer,et al.  HETEROSKEDASTICITY-AUTOCORRELATION ROBUST STANDARD ERRORS USING THE BARTLETT KERNEL WITHOUT TRUNCATION , 2002 .

[69]  Pierre Duchesne,et al.  ON TESTING FOR SERIAL CORRELATION WITH A WAVELET-BASED SPECTRAL DENSITY ESTIMATOR IN MULTIVARIATE TIME SERIES , 2005, Econometric Theory.

[70]  Bruce E. Hansen,et al.  CHALLENGES FOR ECONOMETRIC MODEL SELECTION , 2005, Econometric Theory.

[71]  K. Hoover.  Causality in Macroeconomics , 2001 .

[72]  H. White,et al.  A Reality Check for Data Snooping , 2000 .

[73]  R. Giere.  The Dappled World: A Study of the Boundaries of Science , 2003 .

[74]  Peter C. B. Phillips,et al.  Econometric Model Determination , 1996 .

[75]  B. M. Pötscher.  Effects of Model Selection on Inference , 1991, Econometric Theory.

[76]  P. Phillips,et al.  Local Whittle estimation in nonstationary and unit root cases , 2004, math/0406462.

[77]  Rand R. Wilcox,et al.  The statistical implications of pre-test and Stein-rule estimators in econometrics , 1978 .