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Cambridge Journal of Economics 23:749-770 (1999)
Copyright © 1999 Cambridge Political Economy Society

Article

Econometric modelling in the presence of evolutionary change

J Foster1,z and P Wild2

1 Department of Economics, The University of Queensland, Brisbane QLD 4072, Australia
2 University of Manchester
z Corresponding author
E-mail: j.foster@economics.uq.edu.au

Abstract

A methodology is offered which can be used to construct an econometric model in the presence of structural change of an evolutionary type. The theoretical basis for such modelling is drawn from the self-organisation approach and operationalised in the context of the logistic diffusion growth model. The latter is augmented to allow for the impact of exogenous effects upon both the diffusion rate and boundary limit. We show how the hypothesis of augmented logistic diffusion can be falsified using econometric methods. An illustrative case study is used, namely the growth and decline of Australian Building Society Deposits. With the aid of this example, it is shown how the approach could be of use to both economic forecasters and regulators in conditions of structural change where conventional econometric methods are often inappropriate.

Key Words: Econometric modelling • Economic dynamics • Economic forecasting • Evolutionary economics • Logistic diffusion • Path dependence • Regulation • Self-organisation • Structural change • Time irreversibility


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