While econometric models routinely incorporate unobserved heterogeneity, microsimulations that are based on historical data rarely do so. At issue is that an individual’s history of outcomes contains information about that person’s heterogeneity draw, implying that the individual’s value may not be drawn randomly from the population distribution. Failure to account for heterogeneity may bias be...

A Model as a Simplification of Reality There is no single model of an economic system. In general, a model is a simplified approximation of reality, and there must surely be many such approximations. Therefore, we have large and small models, real and nominal models, sector and aggregative models, dynamic and static models, long-and short-run models, and so on. The model being used at any one t...

Using the Gross Domestic Product (GDP)as a measurement of aggregate economic activity is typical. Its cycles are used as an indicator of boom or recession in the economy. Economists and business people are interested in describing and predicting future values of such indicators.However, due to its intrinsic difficulty and non-linear characters, along with many unknown and random events, it is n...

This chapter explains the logic of structural econometric models and compares them to other types of econometric models. We provide a framework researchers can use to develop and evaluate structural econometric models. This framework pays particular attention to describing different sources of unobservables in structural models. We use our framework to evaluate several literatures in industrial...

The m-testing approach provides a general and convenient framework in which to view and construct speci cation tests for econometric models. Previous m-testing frameworks only consider test statistics that involve nite dimensional parameter estimators and in nite dimensional parameter estimators a ecting the limit distribution of the m-test statistics. In this paper we propose a new m-testing f...

This paper investigates empirically the interrelationships between the daily stock market returns of the Nikkei 225, DAX and Dow Jones Industrial index. Contrary to former work this paper uses the succession of the markets in time to form different econometric models. In this way it is possible to detect causality not only from the US to foreign countries but in some cases vice versa. The obser...

We develop econometric models of ascending (English) auctions which allow for both bidder asymmetries as well as common and/or private value components in bidders’ underlying valuations. We show that the equilibrium inverse bid functions in each round of the auction are implicitly defined (pointwise) by a system of nonlinear equations, so that conditions for the existence and uniqueness of an i...