Interview with Lars

LPH: As a graduate student at the University of Minnesota, I had the opportunity to take classes from Chris Sims and Tom Sargent. Both emphasized the idea that dynamic econometric models should be viewed as restrictions on stochastic processes. Sims’ classroom development of large sample econometrics broke with the more conventional view of the time of focusing on models with exogenous regressors or instrumental variables. His work on causality had emphasized the testable restrictions on stochastic processes of the notion of strict exogeneity. The idea of embedding estimation and testing problems with a stochastic process framework proved to be a very useful starting point. While this is common in econometrics today, it was not at the time I was a graduate student.