Falsifying economic models

This paper presents a methodology for employing qualitative and econometric methods for refuting, or falsifying, the hypothesis presented by an economic model expressed in its structural form. The emphasis of the analysis is upon less than fully quantitative specifications of the structural form, e.g., (as here) where only the sign patterns of the arrays expressing the structural model are known. The method presented enables a structural model to be refuted regardless of its state of identification. It is found that different structural models can be equivalent in terms of the criteria they support that enable falsification. Procedures are presented that allow models to be refuted that are only expressed in terms of their algebraic form. Examples are provided for an early, over-identified macroeconomic model and an under-identified microeconomic model.