ABSTRACT
The construction of dynamic economic models has become an important tool for the analysis of economic fluctuations and for related problems of policy. Systems of structural equations may be composed entirely on the basis of economic theory. Without economic "theory" as another foundation stone, it is impossible to make such statistical inference apply directly to the equations of economic behavior that are most relevant to analysis and to policy discussion. Statistical inference unsupported by economic theory applies to whatever statistical regularities and stable relationships can be discerned in the data. The chapter provides a clear separation between problems of statistical inference arising from the variability of finite samples and problems of identification. It explores the limits to which inference even from an infinite number of observations is subject. The chapter discusses certain problems that arise out of model construction in the second case.
