On the Use of Limit Theorem Arguments in Economic Statistics

Abstract

The heavy reliance on the normal distribution in the teaching of economic statistics is usually justified by appealing to the central limit theorem. Limit theorem arguments can, however, also lead to the nonnormal stable distributions. It is argued that the conditions required for nonnormal stable limits are, in fact, frequently satisfied by economic variables and in particular by disturbance terms in regressions. Normal theory results should, therefore, be used with caution, and it might be wise for economic statisticians to devote more attention to robust statistical methods.

Key Words:

• Central limit theorem
• Economic statistics
• Economic variables
• Normal distribution
• Pareto's law
• Regression disturbances
• Stable distributions