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Abstract: 
We characterize the LSE approach by its implications for reduced-form modeling
and structural interpretations. Much of what has come to be associated with
the LSE methodology involves the approach to fitting reduced forms, and can be
thought of as a pragmatic solution to problems created by short samples
plagued by serial correlation. The policy analysis one might be able to do
with an LSE model, on the other hand, hinges on structural identification
arguments which do not meet the classic Cowles Commission standards, and is
thus suspect.
Full paper (156 KB PDF)
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Full paper (1641 KB Postscript)
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