This paper discusses the econometric methodology of general-to-specific modeling, in which the modeler simplifies an initially general model that adequately characterizes the empirical evidence within his or her theoretical framework. Central aspects of this approach include the theory of...

Using annual data from Friedman and Schwartz (1982), Hendry and Ericsson (1991a) developed an empirical model of the demand for broad money in the United Kingdom over 1878-1975. We update that model over 1976-1993, accounting for changed data definitions and clarifying the concept of constancy....

Despite the importance of well-specified empirical money-demand functions for inference, forecasting, and policy, problems in modeling have arisen concerning the economic theories of money demand, the data, institutional frameworks, financial innovation, and econometric implementation. By...

The statistical formulation of the econometric model is viewed as a sequence of marginalizing and conditioning operations which reduce the parameterization to manageable dimensions. Such operations entail that the "error" is a derived rather than an autonomous process, suggesting designing the...

Structural breaks in stationary time series can induce apparent unit roots in those series. Thus, using recently developed recursive Monte Carlo techniques, this paper investigates the properties of several cointegration tests when the marginal process of one of the variables in the...

Virtually all previous narrow money demand studies for the United Kingdom have used seasonally adjusted data for money, prices, and expenditure. This paper develops a constant, data-coherent M1 demand equation for the United Kingdom with seasonally unadjusted data. For that model, we address...

This paper critically re-evaluates some of the fundamental empirical claims about monetary behavior in the United Kingdom made by Milton Friedman and Anna J. Schwartz in their 1982 book Monetary Trends in the United States and the United Kingdom. We focus on six aspects of their analysis: the...

Even though pieces of empirical evidence individually may corroborate an economic theory, their joint existence may refute that same theory. Testing of rational expectations models provides a concrete illustration of this principle. Surprisingly, empirical refutation of a rational expectations...