Editors’ Introduction
Terence C. Mills and Kerry Patterson
ThePalgrave Handbook of Econometricswas conceived to provide an understand-
ing of major developments in econometrics, both in theory and in application.
Over the last twenty-five years or so, econometrics has grown in a way that few
could have contemplated, and it became clear to us, as to others, that no sin-
gle person could have command either of the range of technical knowledge that
underpins theoretical econometric developments or the extent of the application
of econometrics. In short, econometrics is not, as it used to be considered, a set of
techniques that is applied to a previously well-defined problem in economics; it is
not a matter of finding the “best” estimator from a field of candidates, applying
that estimator and reporting the results. The development of economics is now
inextricably entwined with the development of econometrics.
The first Nobel Prize in Economics was awarded to Ragnar Frisch and Jan Tinber-
gen, both of whom made significant contributions to what we now recognize as
applied econometrics. More recently, Nobel Prizes in Economics have been awarded
to Clive Granger, Robert Engle, James Heckman and Daniel McFadden, who have
all made major contributions to applied econometrics. It is thus clear that the dis-
cipline has recognized the influential role of econometrics, both theoretical and
applied, in advancing economic knowledge.
The aim of this volume is to make major developments in applied economet-
rics accessible to those outside their particular field of specialization. The response
to Volume 1 was universally encouraging and it has become clear that we were
fortunate to be able to provide a source of reference for others for many years to
come. We hope that this high standard is continued and achieved here. Typically,
applied econometrics, unlike theoretical econometrics, has always been rather
poorly served for textbooks, making it difficult for both undergraduate and post-
graduate students to get a real “feel” for how econometrics is actually done. To
some degree, the econometric textbook market has responded, so that now the
leading textbooks include many examples; even so, these examples typically are
of an illustrative nature, focusing on simple points, simply exposited, rather than
on the complexity that is revealed in practice. Thus our hope is that this vol-
ume will provide a genuine entry into the detailed considerations that have to be
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