A Computational Approach to Finding Causal Economic Laws

This paper states four realities of econometric model building and shows that an econometric model can be causal only if the interpretations given to its coefficients are consistent with these realities. A numerically stable algorithm for estimating such a model subject to equality and inequality constraints on the model parameters is presented. This algorithm is designed in such a way that it can be applied even when the matrix of observations on the modelʹs independent variables and the covariance matrix of the modelʹs errors are deficient in rank.