8The Bayesian Approach
8.1 Introduction
Modern econometrics began by introducing probability theory by Fisher, R. A. (1921) and then its demonstration and application in econometric models by Koopmans (1937) 1 and Haavelmo (1944). The probabilistic perspective of stochastic processes provides the proper framework for statistical inference which was a central methodology in econometrics and is discussed throughout the book. There exist two very different approaches in statistical methodology: (1) the ‘frequentist’ approach or called the classical (Gaussian) approach, or called the ‘non-Bayesian’ approach and (2) the Bayesian approach.
Most economic (statistical) problems can be solved using either Gaussian frequentist ...
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