Tuesday, June 24, 2008

Applied Macroeconometrics

By Carlo A. Favero
Publisher: Oxford University Press, USA
Number Of Pages: 296
Publication Date: 2001-03-22
ISBN-10 / ASIN: 0198296851
ISBN-13 / EAN: 9780198296850
Binding: Paperback

Until the 1970s, there was a consensus in applied macroeconometrics, both regarding the theoretical foundation and the empirical specification of macroeconometric modelling, commonly known as the Cowles Commission approach. This is no longer the case: the Cowles Commission approach broke down
in the 1970s, replaced by three prominent competing methods of empirical research: the LSE (London School of Economics) approach, the VAR approach, and the intertemporal optimization/Real Business Cycle approach. This book discusses and illustrates the empirical research strategy of these three
alternative approaches by interpreting them as different proposals to solve problems observed in the Cowles Commission approach.

Summary: An erroneous expression on page 63
Rating: 3

There is a mistake on page 63, (before equation 2.24): It says: Subtract (A1-I)yt-2 from both sides. This is clearly wrong. The correct phrase should be: Add and subtract in the r.h.s. of (2.23) (A1-I)yt-2, and get equation (2.24), etc.

In my humble opinion, this is not really a textbook. You must first know econometrics, and if you really know it, then you verify your knowledge by this text. If this is the case, then the book helps you see modern approaches in macroeconometrics. If you want to start now learning applied macroeconometrics, Enders or Patterson explain more clearly and analytically.

Summary: Nice approach, not so nice delivery
Rating: 4

First, let me praise Favero's effort. He is absolutely right in his approach, i.e, in emphasizing the comparison of the most important "schools" of macroeconometrics. In general, what you have is a textbook about the Cowles Comissionn approach, another about the LSE approach, another about recursive methods and callibration and etc. As many people just read one or two books about macroeconometrics at grad school, it's obvious that very few know about the diversity of techniques available in the field.
Favero, correctly, points out that rather than trying to obscure the differences within the profession, macroeconometricians should expose them. This choice involves practical problems, though. It's obvious, for example, that the book has to cover a lot of ground. The author, however, opted for writting a relatively thin book. Indeed, the book is almost like the collected notes of a grad student in an advanced course (especially because at many points the presentation is very similar to Greene's). It may be (and I think it is) very informative if you already know the stuff (some illustrative E-views programes throughout the book were especially interesting to me), but you won't learn from it. The huge amount of typos in this first edition (what happened to Oxford University Press quality control?) doesn't help it either.
So, the book doesn't work as a textbook (given its incredibly brief presentation of important topics), but is a nice collection of notes - with a correct approach - that will be very useful for the professional macroeconomist.

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