BUILDING A SUCCESSFUL MODEL
“Rome was not built in one day,”3 nor was any reliable model. The only successful approach to modeling lies in a continuous cycle of hypothesis formulation (data gathering), hypothesis testing, and estimation. How you navigate through this cycle will depend on whether you are new to the field, have a small dataset in hand and are willing and prepared to gather more until the job is done, or you have access to databases containing hundreds of thousands of observations. The following prescription, while directly applicable to the latter case, can be readily modified to fit any situation.
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