## Dynamic EconometricsDynamic Econometrics presents a systematic and operational approach to econometric modelling, based on the outcome of a twenty-year research programme. It addresses the practical difficulties of modelling data when the mechanism is unknown, with theory and evidence interlinked at every stage of the discussion. The main problem in econometric modelling of time series is discovering sustainable and interpretable relationships between observed economic variables. This book develops an econometric approach which sustains constructive modelling, clarifies the status of empirical econometric models, and formulates structured tools for critically appraising evidence. Professor Hendry deals with methodological issues of model discovery, data mining, and progressive research strategies, and with major tools for modelling (including recursive methods, encompassing, super exogeneity, and invariance tests). In addition, he considers practical problems of collinearity, heteroscedacity, and measurement errors, and includes an extensive study of UK money demand. The book is self contained, with technical background covered in appendices of matrix algebra, probability theory, regression, asymptotic distribution theory, numerical optimization, and macro-econometrics. Mathematical results appear in solved examples and exercises, and live classroom teaching of econometrics via computer demonstrations is stressed. The structure of the book makes it of practical value to economists investigating empirical phenomena, to advanced undergraduate and graduate econometrics students, and to statisticians involved in the analysis of social science time series. -- Publisher description. |

### Contents

Introduction 335679 | 3 |

Econometric Concepts | 31 |

Econometric Tools and Techniques | 75 |

Dynamics and Interdependence | 122 |

Exogeneity and Causality | 156 |

Interpreting Linear Models | 196 |

4 | 209 |

Dynamic Systems | 212 |

Encompassing | 501 |

Modelling Issues | 544 |

Econometrics in Action | 577 |

A1 Matrix Algebra | 623 |

A2 Probability and Distributions | 639 |

A3 Statistical Theory | 677 |

A4 Asymptotic Distribution Theory | 707 |

Laws of large numbers | 714 |

6 | 217 |

8 | 227 |

Introduction | 231 |

5 | 316 |

88 | 329 |

The Theory of Reduction | 341 |

Likelihood | 371 |

Simultaneous Equations Systems | 405 |

Measurement Problems in Econometrics | 442 |

Testing and Evaluation | 468 |

Stationary dynamic processes | 722 |

Instrumental variables | 728 |

A5 Numerical Optimization Methods | 751 |

A6 MacroEconometric Models | 781 |

819 | |

Common Acronyms | 847 |

853 | |

859 | |

### Common terms and phrases

actual agents alternative analysis approach approximation assumed assumptions asymptotic calculated changes Chapter close coefficient cointegration conditional consider consistent constant convergence corresponding defined denoted density depends derived determined discussed distribution dynamic econometric economic empirical encompassing equation error estimator evidence example exogeneity expectations factorization Finally fitted forecast function given hence Hendry holds important income independent interest interpretation issue joint linear M₁ marginal matrix mean measurement methods Monte Carlo normal observed obtained occur outcomes parameters possible probability problem properties provides random variables reduction regression rejection relative relevant residuals respect restrictions sample solved space standard statistics structure theorem theory tion transformation valid values variables variance vector weak zero