ABSTRACT
Econometrics is regarded as a union of economic theory, mathematics, and statistics, in a dominating traditional view of modelling in econometrics, which was once dubbed the ‘average economic regression’ with the acronym ‘AER’ by Chris Gilbert, economic theory plays a superior role. Contrary to the AER view, there is the linear expenditure system approach to econometrics that refers to a school of econometrics developed in the London School of Economics in the second half of the twentieth century. Historically it originated with J. Denis Sargan and his ‘Colston paper’. But the linear expenditure system approach did not develop in full until David Hendry’s contribution to both theoretical and empirical econometric modelling in the 1970–1980s. Moreover, also like Friedman, Hendry’s theoretical and empirical work on econometric modelling provides substance for investigators to study their methodological implications and to compare them with his own methodological statement.
