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Encompassing: Concepts and Implementation

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  • Christophe Bontemps
  • Grayham E. Mizon

Abstract

The encompassing principle has been carefully and precisely defined in various contexts, since its first appearance in the 1980s literature in numerous papers by Hendry, Mizon and Richard. Since then, several distinct notions of encompassing have been proposed and still coexist in the literature. We describe, illustrate and connect these notions in this paper. We start with the intuitive properties of exact encompassing between estimated models and compare it with its testable counterpart, approximate encompassing. We examine these notions and their main properties within static and dynamic, parametric and non-parametric, classical and Bayesian models and estimators. Encompassing or the lack of encompassing, is also studied via the concepts of parsimonious and partial encompassing. Pseudo-true values, which are central elements in measuring and testing approximate encompassing, are defined in line with the concept of specificity between models. We also examine the role played by the data generating process in the different approaches in the literature. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2008.

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 70 (2008)
Issue (Month): s1 (December)
Pages: 721-750

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Handle: RePEc:bla:obuest:v:70:y:2008:i:s1:p:721-750

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Cited by:
  1. David Hendry & Grayham E. Mizon, 2013. "Unpredictability in Economic Analysis, Econometric Modeling and Forecasting," Economics Series Working Papers 2013-W04, University of Oxford, Department of Economics.
  2. David Hendry & Felix Pretis, 2011. "Anthropogenic Influences on Atmospheric CO2," Economics Series Working Papers 584, University of Oxford, Department of Economics.
  3. Kuan, Chung-Ming & Lin, Hsin-Yi, 2010. "An encompassing test for non-nested quantile regression models," Economics Letters, Elsevier, Elsevier, vol. 107(2), pages 257-260, May.
  4. David Hendry & Jennifer L. Castle, 2010. "Model Selection in Under-specified Equations Facing Breaks," Economics Series Working Papers 509, University of Oxford, Department of Economics.
  5. Jennifer Castle & David Hendry, 2013. "Forecasting and Nowcasting Macroeconomic Variables: A Methodological Overview," Economics Series Working Papers 674, University of Oxford, Department of Economics.
  6. David Hendry & Michael P. Clements, 2010. "Forecasting from Mis-specified Models in the Presence of Unanticipated Location Shifts," Economics Series Working Papers 484, University of Oxford, Department of Economics.

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