Regression Models with Data-based Indicator Variables
AbstractOrdinary least squares estimation of an impulse-indicator coefficient is inconsistent, but its variance can be consistently estimated. Although the ratio of the inconsistent estimator to its standard error has a "t"-distribution, that test is inconsistent: one solution is to form an index of indicators. We provide Monte Carlo evidence that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework. Although White's (1980) heteroskedasticity test is incorrectly sized in that context, we suggest an easy alteration. Finally, a possible modification to impulse 'intercept corrections' is considered. Copyright 2005 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.
Volume (Year): 67 (2005)
Issue (Month): 5 (October)
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Other versions of this item:
- David Hendry & Carlos Santos, 2003. "Regression Models with Data-based Indicator Variables," Economics Series Working Papers 2004-W04, University of Oxford, Department of Economics.
- David F. Hendry & Carlos Santos, 2004. "Regression Models with Data-based Indicator Variables," Economics Papers 2004-W13, Economics Group, Nuffield College, University of Oxford.
- David F. Hendry & Carlos Santos, 2004. "Regression Models with Data-based Indicator Variables," Economics Papers 2004-W04, Economics Group, Nuffield College, University of Oxford.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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