The Properties of Model Selection when Retaining Theory Variables
Publikation: Working paper › Forskning
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The Properties of Model Selection when Retaining Theory Variables. / Hendry, David F. ; Johansen, Søren.
Department of Economics, University of Copenhagen, 2011.Publikation: Working paper › Forskning
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TY - UNPB
T1 - The Properties of Model Selection when Retaining Theory Variables
AU - Hendry, David F.
AU - Johansen, Søren
N1 - JEL classification: C18
PY - 2011
Y1 - 2011
N2 - Economic theories are often fitted directly to data to avoid possible model selection biases. We show that embedding a theory model that specifies the correct set of m relevant exogenous variables, x{t}, within the larger set of m+k candidate variables, (x{t},w{t}), then selection over the second set by their statistical significance can be undertaken without affecting the estimator distribution of the theory parameters. This strategy returns the theory-parameter estimates when the theory is correct, yet protects against the theory being under-specified because some w{t} are relevant.
AB - Economic theories are often fitted directly to data to avoid possible model selection biases. We show that embedding a theory model that specifies the correct set of m relevant exogenous variables, x{t}, within the larger set of m+k candidate variables, (x{t},w{t}), then selection over the second set by their statistical significance can be undertaken without affecting the estimator distribution of the theory parameters. This strategy returns the theory-parameter estimates when the theory is correct, yet protects against the theory being under-specified because some w{t} are relevant.
M3 - Working paper
BT - The Properties of Model Selection when Retaining Theory Variables
PB - Department of Economics, University of Copenhagen
ER -
ID: 37805867