Interpreting economic time series ( behaviour).

Explores implications for econometric practice of the principle that people's observed behaviour will change when their constraints change. In dynamic contexts, a proper definition of constraints includes laws of motion that describe the evolution of the taxes they must pay and the price of the goods that they buy and sell. Changes in agent's perceptions of these constraints will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess. Until very recently, received dynamic econometric practice ignored this principle. The practice of dynamic econometrices should be changed to be consistent with the principle that people's rules of choice are influenced by their constraints. This involves major adjustments in the ways that we formulate, estimate, and simulate econometric models. -Author