Exogeneity, Causality, and Co-Breaking in Economic Policy Analysis of a Small Econometric Model of Money in the U.K.

Posted: 8 Sep 1998

See all articles by David F. Hendry

David F. Hendry

University of Oxford-Nuffield College

Grayham E. Mizon

University of Southampton - Division of Economics

Abstract

Since the objective of economic policy is to change target variables in the DGP, when economic policy analysis uses an econometric model, it is important that the model delivers reliable inferences about policy responses in the DGP. This requires that the model be congruent and encompassing; and hence exogeneity, causality, cointegration, co-breaking, and invariance all play major roles. We discuss these roles in linear cointegrated VARs, prior to illustrating their importance in a bivariate model of money and interest rates in the U.K. over the last century.

JEL Classification: E41, C52

Suggested Citation

Hendry, David F. and Mizon, Grayham E., Exogeneity, Causality, and Co-Breaking in Economic Policy Analysis of a Small Econometric Model of Money in the U.K.. Available at SSRN: https://ssrn.com/abstract=123470

David F. Hendry (Contact Author)

University of Oxford-Nuffield College ( email )

1 New Road
Oxford, OX1 1nf
United Kingdom
+44 1865 278544 (Phone)
+44 1865 278557 (Fax)

HOME PAGE: http://https://www.nuffield.ox.ac.uk/

Grayham E. Mizon

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 (0)23 80 592519 (Phone)
+44 (0)23 8059 3858 (Fax)

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