Econometric Methodology is based on logical positivist principles. Since logical positivism has collapsed, it is necessary to re-think these foundations. We show that positivist methodology has led econometricians to a meaningless search for patterns in the data. An alternative methodology which relates observed patterns to real causal structures is proposed.
Keywords: Econometric Methodology, logical positivism, realism, causality, VAR models, Forecasting, surprise, goodness of fit.
JEL Classifications: C18, B40.
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* Asad Zaman, International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan. (email: asadzaman@alum.mit.edu).