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Causality and Econometrics

H. Wold

Abstract

Much controversy about causality and related concepts has arisen in the philosophical literature, and the haze surrounding the discussion has spread to other fields, among them econometrics. This brief outline stresses certain general principles and ideas that are relevant for actual research activity in the natural and social sciences. The main points are: (1) The concept of causality is indispensable and fundamental to all science; (2) The controversial issues are not latent in the concept of causality itself, but in certain questionable hypotheses, so-called "laws of causality," such as the universal scope of causality, the certainty (irrevocability) of a cause-effect relationship, the connection of causality with theories of induction, the principles of determinism and freedom of the will, etc; (3) A definition of causality which seems to be adequate from both common-sense and scientific points of view is suggested with reference to the well-known situation of the controlled experiment; (4) Some general remarks on statistical methods from the viewpoint of the dual distinction between descriptive and explanatory analysis and between experimental and nonexperimental observations are made; (5-6) Some comments are offered on causal relations as a tool in econometrics, with special regard to the rationale of different types of economic models.