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Trygve Magnus Haavelmo (13 December 1911 – 26 July 1999) was an economist with main research interests centered on the fields of econometrics and economics theory. During World War II he worked with Nortraship in the Statistical Department in New York Citymarker. He received his Ph.D. in 1946 for his work on the "probability approach in econometrics" (1944).


Early years

Born in Skedsmomarker, Norwaymarker, Haavelmo studied with Ragnar Frisch at the University of Oslomarker. He went to the United States in 1939 as a Fulbright scholar, where he remained until 1947. Haavelmo spent much of his sojourn at the Cowles Commission, before returning to Oslo. There he first worked as head of division in the Trade department from 1947-48, and subsequently was appointed Professor in economics and statistics at the University of Oslomarker in 1948. He remained there until his retirement in 1979.


It was during his stay in the United States that Haavelmo wrote his most influential work a 1944 article introducing the "probability approach" to econometrics. The probability approach argued that we should envision existing economic data series as being "a sample selected by Nature", i.e. randomly derived from a "hypothetical" series of distribution which governed reality but which was unobservable. Thus, Haavelmo argued, we can test the validity of economic theories by couching the theoretical model in terms of statistical relationships which can then be tested. The relationship between theory and the hypothetical underlying "reality", argued Haavelmo, is akin to the relationship between the observed data and that "reality". Therefore, if we can come close in relating theory with observed data in some precisely defined statistical manner, then we are effectively saying we have "reproduced" another "natural drawing" from the hypothetical "reality" and thus our theoretical relationships are in a sense "true".

Haavelmo also addressed the issues of identification problems in simultaneous equations econometric problems (Haavelmo, 1943, 1947). It was Haavelmo who differentiated the "structural" from the "reduced" form equation and discussed the relationship between the original parameters and the reduced-form estimates. It was Haavelmo that introduced the "determinant condition" for identifiability. This set the ground for the "Cowles approach" approach to econometrics and the methodological debates on empirical economics that raged during the 1940s.

Haavelmo contributed to other areas of economics. In business cycle theory, Haavelmo argued in an 1940 paper that one need not obtain oscillations as a solution to a dynamic model as one can obtain business cycles with a monotonic dynamical system, provided there is an appropriate pattern of shocks à la Slutsky. Haavelmo is also responsible for the famous Keynesian "balanced budget multiplier theorem" (1945).

In the 1950s, Haavelmo moved in more theoretical directions. In 1954, he published a book on growth theory with "skill accumulation" that anticipates many of the themes of modern "endogenous growth" theories. His most bold effort was in attempting to set out a micro-founded theory of investment (1960). Haavelmo identified the main problems of reconciling a theory of capital with a theory of investment.

In 1989, Haavelmo was awarded the Nobel Memorial Prize in Economic Sciences "for his clarification of the probability theory foundations of econometrics and his analyses of simultaneous economic structures."

Major publications

  • "The Method of Supplementary Confluent Relations", 1938, Econometrica.
  • "The Inadequacy of Testing Dynamic Theory by Comparing the Theoretical Solutions and Observed Cycles", 1940, Econometrica .
  • "Statistical Testing of Business Cycles", 1943, RES.
  • "The Statistical Implications of a System of Simultaneous Equations", 1943, Econometrica.
  • "The Probability Approach in Econometrics", 1944, Econometrica.
  • "Multiplier Effects of a Balanced Budget", 1945, Econometrica ("Supplementary Notes", 1946).
  • "Family Expenditures and the Marginal Propensity to Consume", 1947, Econometrica.
  • "Methods of Measuring the Marginal Propensity to Consume", 1947, JASA.
  • "Statistical Analysis of the Demand for Food: Examples of Simultaneous Estimation of Structural Equations", with M.A. Girshick, 1947, Econometrica.
  • "Family Expenditures and the Marginal Propensity to Consume", 1947, Econometrica.
  • "Quantitative Research in Agricultural Economics: The Interdependence Between Agriculture and the National Economy", 1947, J of Farm Econ.
  • "The Notion of Involuntary Economic Decisions",1949, EJ.
  • "A Note on the Theory of Investment", 1950, RES.
  • "The Concepts of Modern Theories of Inflation", 1951, Eknomisk Tidssk.
  • A Study in the Theory of Economic Evolution, 1954.
  • "The Role of the Econometrician in the Advancement of Economic Theory", 1958, Econometrica.
  • A Study in the Theory of Investment, 1960.
  • "Business Cycles II: Mathematical Models", 1968, IESS.
  • Variation on a Theme by Gossen, 1972 (Swedish).
  • "What Can Static Equilibrium models Tell Us?", 1974, Econ Inquiry.
  • "Econometrics and the Welfare State", 1990, Les Prix Nobel de 1989.

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