ABSTRACT
This chapter discusses what an econometric methodology, which takes structural change fully into account, might look like. It discusses the onset of crisis in econometric methodology, in the late 1970s. The chapter explores the methodological debate which has developed in the wake of widespread dissatisfaction with 'classical' econometric methodology. It examines how the econometric specifications and results yielded by new methodological approaches can be interpreted from the perspective of evolutionary change in the economic system. The chapter offers suggestions as to how such change could be dealt with, explicity, in econometric methodology. The London School of Economics (LSE) methodology represents a pragmatic compromise, with the needs of a macroeconometric model-builder in mind. Furthermore, the form of the linear specification may also admit a structural change interpretation. In an economic structure, where monetary valuation is used to measure all flows, it is difficult to disentangle production, maintenance and development in monetary flows, particularly at higher levels of aggregation.
