NDLI: Are residual economic relationships normally distributed? Testing an assumption of neoclassical economics

Content Provider	Springer Nature Link
Author	Bundt, Thomas Murphy, Robert P.
Copyright Year	2008
Abstract	In both theoretical and applied contexts, neoclassical economics typically assumes that residual economic relationships are mean-zero, finite-variance, normally distributed random variables. However, many have challenged this view, from various perspectives. The Austrian economists, specifically in the tradition of Mises and Rothbard, reject outright the effort to mathematically model human choices. This Austrian view is often derided as unscientific. However, some of the most mathematically sophisticated work in financial economics also rejects the orthodox bell curve. In this paper, we test Benoit Mandelbrot’s “stable Paretian” hypothesis on ten major macroeconomic data sets and reject the normal distribution in nine of them. We further argue that the stable Paretian hypothesis (and, more generally, the field of “chaos theory”) is far more compatible with the Austrian position than one might initially suspect.
Starting Page	329
Ending Page	340
Page Count	12
File Format	PDF
ISSN	08893047
Journal	The Review of Austrian Economics
Volume Number	21
Issue Number	4
e-ISSN	15737128
Language	English
Publisher	Springer US
Publisher Date	2008-04-26
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Stable Paretian hypothesis Chaos theory Time series forecasting Methodology and the History of Economic Thought Political Science Public Finance & Economics
Content Type	Text
Resource Type	Article
Subject	Economics, Econometrics and Finance

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