As an empiricist--every regression you run should ultimately be based on a formal model Example 1: Comparative Statics Much of what economic theory does is to derive comparative statics. To show what a particular model implies about the relationship between X and yor more precisely, what exogenous changes in X do to the equilibrium level ofY Why do we do this? Example 2: Estimating Parameters For example, estimating what is the elasticity of labor supply, or the discount factor Again--estimating parameters only makes sense in the context of a model
As an empiricist—every regression you run should ultimately be based on a formal model. Example # 1: Comparative Statics. Much of what economic theory does is to derive comparative statics. To show what a particular model implies about the relationship between X and Y, or more precisely, what exogenous changes in X do to the equilibrium level of Y. Why do we do this? Example # 2: Estimating Parameters. For example, estimating what is the elasticity of labor supply, or the discount factor. Again—estimating parameters only makes sense in the context of a model
As a matter of discipline it makes sense to write down a model that justifies every regression that you run i would say that it even makes sense for the model to be precise enough to justify the exact functional form that you a classic example--people are fond of regressing growth in income on initial characteristics (years of schooling, to estimate what causes productivity growth Even the most simple model tells you that this makes much more sense at the country than at the city level Why? What would make more sense to use at the city level? The point is that economic theory guides our empirics
As a matter of discipline, it makes sense to write down a model that justifies every regression that you run. I would say that it even makes sense for the model to be precise enough to justify the exact functional form that you use. A classic example—people are fond of regressing growth in income on initial characteristics (years of schooling, to estimate what causes productivity growth). Even the most simple model tells you that this makes much more sense at the country than at the city level. Why? What would make more sense to use at the city level? The point is that economic theory guides our empirics