NDLI: The ontological status of shocks and trends in macroeconomics

Content Provider	Springer Nature Link
Author	Hoover, Kevin D.
Copyright Year	2014
Abstract	Modern empirical macroeconomic models, known as structural autoregressions (SVARs) are dynamic models that typically claim to represent a causal order among contemporaneously valued variables and to merely represent non-structural (reduced-form) co-occurence between lagged variables and contemporaneous variables. The strategy is held to meet the minimal requirements for identifying the residual errors in particular equations in the model with independent, though otherwise not directly observable, exogenous causes (“shocks”) that ultimately account for change in the model. In nonstationary models, such shocks accumulate so that variables have discernible trends. Econometricians have conceived of variables that trend in sympathy with each other (so-called “cointegrated variables”) as sharing one or more of these unobserved trends as a common cause. It is possible for estimates of the values of both the otherwise unobservable individual shocks and the otherwise unobservable common trends to be backed-out of cointegrated systems of equations. The issue addressed in this paper is whether and in what circumstances these values can be regarded as observations of real entities rather than merely artifacts of the representation of variables in the model. The issue is related, on the one hand, to practical methodological problems in the use of SVARs for policy analysis—e.g., does it make sense to estimate of shocks or trends in one model and then use them as measures of variables in a conceptually distinct model? The issue is also related to debates in the philosophical analysis of causation—particularly, whether we are entitled, as assumed by the developers of Bayes-net approaches, to rely on the causal Markov condition (a generalization of Reichenbach’s common-cause condition) or whether cointegration generates a practical example of Nancy Cartwright’s “byproducts” objection to the causal Markov condition.
Starting Page	3509
Ending Page	3532
Page Count	24
File Format	PDF
ISSN	00397857
Journal	Synthese
Volume Number	192
Issue Number	11
e-ISSN	15730964
Language	English
Publisher	Springer Netherlands
Publisher Date	2014-07-15
Publisher Place	Dordrecht
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Shocks Trends Causation Causal Markov condition Principle of the common cause Counterfactual policy analysis Philosophy of Science Epistemology Logic Philosophy of Language Metaphysics
Content Type	Text
Resource Type	Article
Subject	Philosophy Social Sciences

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The Ontological Status of Shocks and Trends in Macroeconomics

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