National open university of nigeria introduction to econometrics I eco 355

 
3.4. LIMITATIONS AND CRITICISMS 
Like other forms of statistical analysis, badly specified econometric models may show a 
spurious relationship where two variables are correlated but causally unrelated. In a study 
of the use of econometrics in major economics journals, McCloskey concluded that some 
economists report p values (following the Fisherian tradition of tests of significance of 
point null-hypotheses) and neglect concerns of type II errors; some economists fail to 
report estimates of the size of effects (apart from statistical significance) and to discuss 
their economic importance. Some economists also fail to use economic reasoning for 
model selection, especially for deciding which variables to include in a regression. It is 
important in many branches of statistical modeling that statistical associations make some 
sort of theoretical sense to filter out spurious associations (e.g., the collinearity of the 
number of Nicolas Cage movies made for a given year and the number of people who 
died falling into a pool for that year). 
In some cases, economic variables cannot be experimentally manipulated as treatments 
randomly assigned to subjects. In such cases, economists rely on observational studies, 
often using data sets with many strongly associated covariates, resulting in enormous 
numbers of models with similar explanatory ability but different covariates and 
regression estimates. Regarding the plurality of models compatible with observational 
data-sets, Edward Leamer urged that "professionals ... properly withhold belief until an 
inference can be shown to be adequately insensitive to the choice of assumptions" 
4.0 
CONCLUSION
The unit critically conclude that basic econometrics models is the basis of econometrics 
and from the simple straight line graph we can see that a simple/linear regression 
equation is derived from the graph and from there, the model of econometrics started to 
emanate to becomes higher level of econometrics model which is called multiple 
regression analysis.