General methodology of modern economic research Step 2:Development of economic theories/models Step 2:Development of economic theories/models An example is the Euler equation for rational expectations in macroeconomics. The objective of economic modeling is not merely to explain the stylized facts,but also to understand the economic mechanism. Probability and Statistics for Economists Introduction to Statistics and Econometrics May13,2019 9Probability and Statistics for Economists Introduction to Statistics and Econometrics May 13, 2019 9 Step 2: Development of economic theories/models • An example is the Euler equation for rational expectations in macroeconomics. • The objective of economic modeling is not merely to explain the stylized facts, but also to understand the economic mechanism. General methodology of modern economic research Step 2: Development of economic theories/models